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How Elections Sway Foreign Investor Sentiment in India

18 April 20246 mins read by Angel One
This article delves into the intriguing relationship between FPI net total flows and Indian elections, analyzing data from the past four general elections (2004, 2009, 2014, and the upcoming 2024 election).
How Elections Sway Foreign Investor Sentiment in India
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Foreign Portfolio Investors (FPIs) play a crucial role in the Indian stock market. Their investment decisions can significantly impact market volatility and overall health.

Our analysis reveals a mixed picture. While there’s no clear, consistent pattern across all elections, the data suggests some interesting trends. In the 2014 elections, FPI net total flows were positive before the election and even higher three months after, indicating investor confidence in the post-election scenario. Conversely, the 2009 election witnessed negative net flows before the election, followed by a positive swing afterward. This could be attributed to the global financial crisis that year, impacting overall investor sentiment. In the 2004 elections, FPI inflows reduced significantly three months after the elections, indicating reduced interest by FPIs in Indian markets.

The following table illustrates the FPI net total flows data three months before the starting month of elections and three months after the end of the election month. Net total flows encompass both equity and debt inflows and outflows.

Elections FPI Net Total Flows (Rs crore)
From To Before 3 months After 3 Months
19 April, 2024 01 June, 2024 77,220
11 April, 2019 19 May, 2019 55,248 4,237
07 April, 2014 12 May, 2014 57,727 88,885
16 April, 2009 13 May, 2009 -12,454 22,610
20 April, 2004 10 May, 2004 12,986 2,966

The upcoming 2024 election presents a unique case. Data for the pre-election period (three months before) shows positive net inflows, potentially reflecting optimism about the Indian economy and a stable government post-election. However, data for the post-election period is yet to be available. But according to GDP growth estimates of various brokerages, IMF and RBI the fund inflows are expected to be positive given the outperformance of the Indian economy despite geopolitical issues prevailing in the global markets.

Beyond the Numbers: Factors at Play

Understanding FPI behavior requires considering various factors beyond just election timing. Here are some key influences:

  • GovernmentPolicies: FPIs closely monitor government policies that impact business regulations, foreign investment regulations, and overall economic stability. A clear and stable policy framework fosters investor confidence.
  • MacroeconomicConditions: Inflation, interest rates, and GDP growth significantly influence investment decisions. A robust and growing economy attracts foreign capital.
  • GlobalMarketTrends: Global market volatility, interest rates in developed economies, and global risk aversion can impact FPI flows into emerging markets like India.
  • DomesticMarketPerformance: The attractiveness of the Indian stock market itself plays a role. Strong corporate earnings, attractive valuations, and a well-developed regulatory framework can entice FPIs.

Nifty50 relationship with FPI flows

The FPI net flows relationship with Nifty50 is somewhat directly related as FPI flows increase the Nifty50 returns increase but at a lower proportion

DII stakes rise, FII Influence Wanes

In recent years, there has been a significant shift in the ownership of Indian companies. Foreign Institutional Investors (FIIs) have been steadily decreasing their holdings, while Domestic Institutional Investors (DIIs) have been aggressively buying. This trend is evident in the record inflows into mutual funds and pension funds. Fueled by this domestic financialization

According to the data from, DII holdings have been on the rise, while foreign ownership has dropped in the past 10 years. Domestic institutional holdings in NSE-listed companies increased to 15.96% in December 2023 as against 13.77% in December 2018 or 10.49% in December 2013. Foreign holdings in NSE-listed companies were at 18.19% as of December 2023 down from 19.66% in December 2018 or 19.36% as of December 2013. FIIs holding hit a peak of 21.21% in December 2020.

This narrowing gap, with DIIs just 12.23% behind FIIs, suggests a potential future where domestic investors hold a larger sway in the Indian market. This shift in ownership has a crucial implication: the impact of FII inflows and outflows, which previously caused significant market volatility, is likely to be dampened as DIIs become a more prominent and stable source of investment.


In conclusion, while no consistent pattern emerges across all elections, the analysis reveals nuanced dynamics influenced by global and domestic factors. Moreover, the discussion on the evolving ownership landscape, with DIIs gaining prominence over FIIs, underscores the shifting dynamics of the Indian stock market. As DIIs continue to assert their influence, the impact of FII inflows and outflows on market volatility is expected to diminish.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.

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