Foreign Institutional Investors (FIIs) are maintaining a stance of cautious optimism toward Indian markets as of late February 2026. While the landscape remains volatile, sentiment is gradually shifting from the aggressive selling seen in previous quarters toward a more selective, wait-and-watch strategy. Recent data shows a mixed flow of capital. In the week ending February 13, 2026, foreign portfolio investors were net buyers with total inflows of 69.34 billion INR. This was largely driven by a strong appetite for debt instruments, which accounted for 51.39 billion INR. In contrast, equity flows remain fragmented. Primary markets are attracting steady interest, while the secondary market recently recorded modest outflows of 4.55 billion INR due to profit-taking. A significant pivot occurred in early February following a trade deal between India and the United States. The reduction of reciprocal tariffs from 25% to 18% sparked a major single-day rally, with FIIs pumping 54.26 billion INR into the cash market on February 3. This event pushed the BSE Sensex to an intraday peak of 85,871 and the Nifty 50 toward 26,341. However, recent sessions have introduced fresh headwinds. As of February 24, benchmark indices faced sharp selling pressure, with the Sensex closing at 82,225 and the Nifty at 25,424. This downturn was primarily triggered by a rout in the IT sector. New advancements in artificial intelligence and reports questioning the long-term viability of the labor-arbitrage model have caused the Nifty IT index to plunge over 20% in the last month. Despite these tech-driven concerns, institutional interest is concentrating in domestic cyclicals. The banking sector remains a primary focus, supported by resilient credit growth in the 13% to 15% range. Large-cap lenders are seeing a shift from retail-led expansion to corporate credit as industrial capital expenditure begins to materialize on balance sheets. Capex-driven industries and infrastructure also remain high-conviction themes. With government infrastructure spending projected at 15 to 25 trillion INR annually over the next five years, sectors like capital goods and metals are showing resilience. The Nifty Metal index reached fresh all-time highs in February, gaining 14.30% so far in 2026. Market stability is currently being anchored by Domestic Institutional Investors (DIIs). On sessions where FIIs offloaded stocks, such as the 102 million INR sale on February 24, DIIs acted as shock absorbers with purchases exceeding 3,161 million INR. Looking ahead, analysts expect FII participation to stabilize as earnings visibility improves. While many global funds remain technically underweight on India, the cooling of valuation premiums and the prospect of a 7.5% GDP growth rate for the coming fiscal year provide a constructive backdrop for long-term capital re-entry.