Foreign Investment Interest in India Declines Amid Geopolitical Concerns

Zerodha's CEO Nithin Kamath has raised concerns about the declining interest of foreign investors in India, citing geopolitical risks and unfavorable tax regulations. With record outflows from Indian equities and a shift in focus towards other markets, the need for policy adjustments is urgent. Kamath suggests that addressing tax and transaction costs could help restore investor confidence. As the market grapples with these challenges, the future of foreign investment in India hangs in the balance. Discover the full insights and implications of this trend.

By Narendra Chaudhary Apr 9, 2026, 20:07 IST

Declining Foreign Investment Interest

Nithin Kamath, co-founder and CEO of Zerodha, recently shared a candid post on X (formerly Twitter) that has sparked discussions in the financial community. He inquired about the current interest of foreign investors in India, receiving a rather discouraging response. According to Kamath, enthusiasm for investing in India has significantly waned. Global investors are increasingly wary of the geopolitical risks associated with the country, particularly in light of potential fluctuations in oil prices. Additionally, there seems to be a lack of compelling artificial intelligence narratives emerging from India at this time. Coupled with high stock valuations and a depreciating rupee, these factors have raised concerns among investors.

Many foreign funds that previously enjoyed substantial profits in Indian markets have already realized their gains and redirected their focus towards regions like Japan, Taiwan, South Korea, and parts of Europe, where they perceive more favorable opportunities.

Kamath highlighted another critical issue that diminishes India's appeal: the country's tax regulations. The existing framework for long-term capital gains (LTCG) and short-term capital gains (STCG) taxes, along with the recent increase in Securities Transaction Tax (STT), has made trading and investing in India more expensive compared to other markets that continue to attract steady foreign investments.

He concluded with a practical suggestion: if India aims to attract foreign portfolio investors (FPIs) again, addressing tax and transaction cost issues could be a straightforward solution. This could be implemented relatively quickly without requiring extensive changes elsewhere.

The Numbers Reflect the Trend

Kamath's observations align with recent trends. March 2026 marked a record month for foreign selling in Indian equities, with FPIs withdrawing between ₹1.14 lakh crore and ₹1.18 lakh crore from stocks—the highest monthly outflow ever recorded. For the entire financial year 2025-26, net FPI outflows from equities exceeded ₹1.8 lakh crore, marking the largest annual exit since 1992.

Even in early April 2026, the trend continued, with an additional ₹24,000 crore leaving the market during a brief trading week. A significant factor contributing to this outflow has been the recent surge in global crude oil prices following escalating tensions in the US-Iran conflict. Given that India imports approximately 85% of its oil, rising crude prices directly impact the current account, heighten inflation concerns, and weaken the rupee, which has recently approached record lows against the dollar.

Foreign investors are particularly sensitive to currency risks when they invest in dollars and later seek to repatriate profits. The combination of high valuations—where the Nifty is trading at premium multiples compared to many Asian counterparts—and the absence of attractive AI or tech themes that are drawing significant investments elsewhere explains the decline in allocations to India.

Can India Address These Challenges?

The tax issues that Kamath mentioned have been a point of concern for many brokers and market participants for some time. Following changes in capital gains taxation and the increase in STT, the overall cost of conducting business in Indian markets has risen. Some global funds now view other emerging or developed markets as more conducive to active investing.

While domestic retail investors have increasingly participated in the market, with demat accounts surpassing 11 crore, sustained foreign investment remains crucial for market depth, liquidity, and managing volatility.

Kamath's insights are timely. Although many believe in India's long-term growth potential, the short-term outlook among global investors has clearly deteriorated. Addressing simpler issues—such as reassessing STT and the impact of capital gains tax—could help restore some confidence without waiting for geopolitical tensions or oil prices to stabilize.

Ultimately, the responsibility lies with policymakers. Their approach to these manageable challenges will determine how swiftly foreign interest in India can be rekindled.