Reversing the three-month selling streak in June, foreign portfolio investors (FPIs) pumped in a net Rs 21,235 crore in domestic markets amid increasing liquidity and gradual opening up of economy.

According to data from depositories, FPIs invested Rs 22,893 crore into equities but pulled out Rs 1,658 crore from the debt segment, taking the total net investment to Rs 21,235 crore between June 1 and June 26.

Prior to this, foreign investors remained net sellers for three consecutive months. They pulled out a net Rs 7,366 crore in May, Rs 15,403 crore in April and a record Rs 1.1 lakh crore in March.

"FPIs are increasing their investments in small- and mid-cap stocks that they were already investing in for over a year now," said Harsh Jain, co-founder and chief operating officer at Groww, said.

India has emerged as the best-performing equity market in the past three months and this is certainly adding to India's appeal as an investment destination, he added.

He further said India has done well in contact-tracing of patients, which is helping open up the economy.

"Currently, the valuations are still compressed and equities are attractively priced, which is a good buying opportunity. With a relatively long-term investment horizon, Indian equities could be a good investment option for FPIs especially once the Covid-19 crisis is resolved and the current market trend reverses," Himanshu Srivastava, associate director-manager research at Morningstar India, said.

In addition to that, increased liquidity in the global markets will also pave its way into the emerging markets, with India also benefiting, Srivastava added.

The Indian financial markets will continue to witness rotational trend with respect to foreign flows. One can expect bouts of sharp net inflows and outflows by FPIs in the Indian financial markets, depending on their changing opinion and global trends, he said.

Going forward, Srivastava said, "Globally, the scenario is evolving and there are multiple factors that are dictating the direction of foreign flows." While the challenges with respect to rising COVID-19 cases and recovery of economic growth remains in India, he said there are certain technical factors that ensure the continuity of foreign flows into the country from time to time.