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Foreign Investments in Indian Markets Hit a Decade Low

Foreign investments in India's markets have reached a 10-year low, with significant outflows from foreign portfolio investors. As the government implements measures to attract these investors back, experts suggest a shift in the AI trade could be crucial. Recent reforms aim to enhance foreign participation in government securities, while the rupee shows signs of stabilization. The performance of Taiwan's stock market, driven by AI advancements, raises questions about India's competitiveness. Discover how these developments could impact the future of foreign investments in India.
By Narendra Chaudhary Jun 7, 2026, 17:06 IST

Decline in Foreign Portfolio Investments


Foreign investments in India's markets have plummeted to their lowest level in ten years, with net investments by foreign portfolio investors (FPIs) in local equities recorded at Rs 7.3 trillion as of June 1, marking the lowest since 2016, according to data from the National Securities Depository Ltd. In May, FPIs sold net equities worth Rs 32,963 crores, and this trend of selling persisted into early June, with total sales reaching Rs 42,926 crores by June 6. This brings the total selling for 2026 to Rs 283,662 crores.


Experts are now questioning how to entice foreign investors back into the market. Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, suggested that a shift in the AI trade, which has largely driven FPI outflows, is necessary. He noted early signs of this shift, pointing to a 5% drop in the Nasdaq on June 5 as a potential indicator of an impending AI bubble burst. If the AI trade begins to cool, it could lead to a reversal of FPI outflows.


Given the critical role of FPI inflows in financing the current account deficit and the Balance of Payments gap, the Central Bank and the government have implemented various measures to attract FPIs. These include tax exemptions on interest and capital gains from FPI investments in government securities, announced on June 5, as well as monetary policy adjustments such as the RBI covering hedging costs on FCNR deposits, expanding the forex swap window, and increasing access to government bonds through the Fully Accessible Route (FAR). These initiatives are expected to facilitate forex inflows into India and have contributed to the stabilization of the rupee, which improved from a low of 96.96 to 94.94 on June 5.


Recently, the government has rolled out reforms aimed at boosting foreign investor participation in Government Securities (G-Secs). Key reforms 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 FAR and streamlined investment regulations. 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 data.


Interestingly, in a recent week, the stock markets of Taiwan and South Korea have outperformed India on a global scale, with the surge in Taiwan's market being driven entirely by the AI boom surrounding Taiwan Semiconductor Manufacturing Company (TSMC).