Foreign Investment in Indian Equity Markets Hits Decade Low

The Indian equity market is witnessing a significant decline in foreign investment, reaching a 10-year low. Recent data reveals that net investments by foreign portfolio investors have dropped to Rs 7.3 trillion, the lowest since 2016. This downturn reflects a broader trend of decreasing global fund ownership in Indian companies. In response, the government has introduced reforms to enhance foreign participation in government securities, including tax exemptions. Meanwhile, Taiwan and South Korea have surpassed India in market capitalization, highlighting shifts in global investment dynamics. Discover the implications of these changes and the government's efforts to revitalize the market.

By Narendra Chaudhary Jun 7, 2026, 15:04 IST

Decline in Overseas Investment

Investment from abroad in India's equity markets has plummeted to its lowest point in ten years, indicating a waning appeal of the nation's $4.9 trillion stock market. According to data from the National Securities Depository Ltd, foreign portfolio investors' net investments in local shares reached Rs 7.3 trillion as of June 1, marking the lowest figure since 2016. This data reflects the total investments or withdrawals made since 1993 in Indian equities.

The share of global funds in listed companies has decreased from nearly 20% a decade ago to 15%, while domestic mutual funds now hold close to 20% of the market.

To bolster the capital market, the government has rolled out several reforms aimed at enhancing Foreign Portfolio Investor (FPI) involvement in Government Securities (G-Secs). Key initiatives include tax exemptions on interest income, long-term capital gains (LTCG), and short-term capital gains (STCG), along with an expansion of specified securities under the Fully Accessible Route (FAR) and simplified investment regulations.

Previously, Foreign Institutional Investors (FIIs) faced taxation under Section 210 of the Income-tax Act, 2025. Interest income from G-Secs was taxed at 20% for FIIs/FPIs, while short-term capital gains from G-Secs sales were taxed at 30%, depending on the transaction type, and long-term capital gains were taxed at 12.5%.

Under the new framework, FPIs/FIIs will no longer be taxed on interest income from G-Secs, nor on capital gains from the sale, transfer, exchange, or redemption of G-Secs. As of May 12, 2026, FPIs held G-Secs valued at Rs 3,75,171 crore, representing 3.34% of the total outstanding G-Secs stock of Rs 112.42 lakh crore, according to government statistics.

In recent developments, the stock markets of Taiwan and South Korea have overtaken India on the global stage. Taiwan's market capitalization reached nearly $5 trillion, propelling it to the position of the world's fifth-largest equity market, while South Korea has also surpassed India, pushing it down to seventh place.

The United States continues to lead as the largest market globally, with a market cap of $77.96 trillion, followed by China and Japan at $15.57 trillion and $8.67 trillion, respectively. Hong Kong ranks fourth with a market cap of $7.26 trillion. The surge in Taiwan's market has been largely driven by advancements in artificial intelligence, particularly through the Taiwan Semiconductor Manufacturing Company (TSMC).