The persistent foreign sell-off that weighed heavily on Dalal Street for the past six months finally seems to be losing momentum, offering a much-needed break for anxious investors. Fresh data reveals that foreign institutional investors (FIIs) turned net buyers on March 20, picking up shares worth Rs 3,239 crore. This marks only the fifth time in recent months that FIIs have emerged as net buyers. Additionally, they bought net shares worth Rs 1,462 crore on March 18, signaling a possible shift in sentiment.
In total, FIIs have been net buyers in two of the past four trading sessions this week. While this turnaround is relatively small compared to the relentless selling witnessed over the last half-year — which wiped out significant market value — it has been enough to spark a broad-based rally across Dalal Street. The market now looks set to register one of its strongest weekly performances of the year, fueling hopes that the worst of the sell-off may finally be behind us.
The extensive FII sell-off has been the dominant factor behind the prolonged correction, eroding market confidence, particularly among retail investors. Many retail participants, who initially entered the market during the pandemic-driven rally, saw their portfolios shrink as foreign funds aggressively dumped shares. The reversal in FII behavior, however slight, has provided a renewed sense of optimism, with retail investors returning to capitalize on stocks now trading at more attractive, discounted valuations.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted that the key driver of this rally is not just the buying by FIIs in the cash market over consecutive sessions, but also a crucial shift in market positioning. He highlighted a "sharp decline in short positions and an increase in long positions in the futures market," which indicates that foreign investors are beginning to bet on a market recovery rather than continuing to hedge against further losses.
“This change in FII behavior seems to have restored confidence among retail investors, who have resumed buying, especially in the broader market," Vijayakumar explained. "This resurgence is particularly evident in the strong rebound seen in mid and smallcap indices — segments that were hit hardest during the protracted downturn.”
Market experts, however, remain cautiously optimistic. While the recent buying is encouraging, they caution that it’s premature to declare the FII sell-off officially over. Several global factors continue to loom large over market sentiment, including fears of a global economic slowdown, rising interest rates in the US and Europe, and geopolitical tensions. Additionally, former US President Donald Trump’s proposed reciprocal tariffs and the possibility of escalating trade wars could create further volatility.
That said, analysts agree that the mood has improved considerably in the past few days. If the trend of foreign buying sustains and global uncertainties ease, Dalal Street could be headed for a more sustained recovery, bringing much-needed relief to both institutional and retail investors alike.
