Earnings Revival and Stable Rupee Spell Relief for Foreign Investors, Lower Capital Gains Tax May Follow.

Foreign Portfolio Investors Remain Sellers of Indian Equities Amid Elevated Crude Oil Prices and Global Uncertainty

Foreign portfolio investors (FPIs) have continued to sell Indian equities in 2026, exerting pressure on both the domestic stock market and the rupee. According to data from the National Securities Depository Limited (NSDL), FPIs have sold Indian equities worth ₹2.28 lakh crore through the secondary market so far this calendar year, already exceeding the total outflows recorded in 2025. Meanwhile, investments through the primary market have remained relatively modest, with year-to-date inflows of ₹12,770.59 crore.

The sustained outflows come despite India's strong long-term economic growth prospects. Overseas investors have largely stayed on the sidelines in recent months due to concerns over slowing corporate earnings growth, rupee depreciation, higher global bond yields, and more attractive opportunities in competing markets. Market experts believe a meaningful revival in FPI inflows will require a combination of stronger earnings growth, macroeconomic stability, currency resilience, and attractive valuations.

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Key Factors Driving a Revival in FPI Inflows

Earnings Revival Will Be the Biggest Trigger

Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund, believes that India does not need a dramatic shift in global capital flows to attract FPIs again. Instead, what foreign investors need is a credible earnings recovery story backed by macroeconomic stability. According to Gulati, the most important catalyst for a return of foreign capital would be a meaningful improvement in corporate earnings across sectors such as banking, manufacturing, capital goods, and consumption.

Factors Influencing FPI Flows

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Nitant Darekar, Research Analyst at Bonanza, identified three factors that could determine when foreign investors return. The first is currency stability. He noted that the rupee's depreciation from 85 to 96.3 against the US dollar has significantly eroded dollar-denominated returns, making fresh allocations less attractive. A recovery toward the 88–90 range would be a positive signal.

Valuations and Macro Stability

Sunny Agrawal, Head of Fundamental Research at SBI Securities, said that stable macroeconomic conditions, currency stability, and attractive valuations remain the key ingredients for sustained FPI inflows into Indian equities. Agrawal noted that the rupee's weakness against the US dollar has made Indian markets relatively less appealing to overseas investors. Therefore, stability in the domestic currency will be crucial for attracting fresh foreign capital.

Noting the Cyclical Nature of FPI Flows

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments, cautioned against viewing the recent decline in FPI flows as a cause for alarm, noting that foreign portfolio investment is inherently cyclical and influenced by changing global conditions. According to Vijayakumar, FPI inflows have turned negative since September 2024 primarily because India's earnings growth slowed from FY25 onward, while several competing markets reported stronger earnings performance.