Foreign portfolio investors (FPIs) have made a strong comeback to Indian equity markets in November, pumping in ₹53,739 crore so far, according to the latest NSDL data. The inflows mark a sharp turnaround after sustained selling pressure through much of 2026, with FPIs remaining net sellers in eight of the first ten months of the year.
The latest buying has helped narrow the cumulative net outflows from Indian equities to ₹2.41 lakh crore in 2026. FPIs had withdrawn ₹35,962 crore in January, followed by net inflows of ₹22,615 crore in February. However, selling intensified in March, with outflows of ₹1.18 lakh crore, and continued through June. July and August briefly brought some relief, with inflows of ₹20,200 crore and ₹29,631 crore, respectively, before foreign investors returned to selling in September and October.
November’s strong inflows raise the question of whether foreign investors are turning more positive on Indian equities after a prolonged period of caution.
Why have FPIs returned to Indian equity markets?
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said Indian equities witnessed a sharp reversal in institutional activity last week, with foreign portfolio investors (FPIs) turning aggressive buyers while domestic institutional investors (DIIs) emerged as net sellers on all trading days.
The aggressive FPI buying triggered a short squeeze, pushing the Nifty up 7.58% in a week, he said.
According to Vijayakumar, the sudden shift in FPI sentiment was partly driven by the sell-off in artificial intelligence (AI)-related stocks in the US and other markets, including South Korea, Taiwan and Japan. Concerns over spending on data centres in the US contributed to the sell-off, while political developments following the US midterm elections added to uncertainty around future AI investments.
“The AI sell-off has made India, which is widely regarded as a non-AI trade, attractive for FPIs. Furthermore, the impressive earnings growth in India and the attractive large-cap valuations have made India a favoured investment destination,” Vijayakumar said.
He added that FPIs had bought Indian equities aggressively in November, with net inflows of ₹45,970 crore so far, according to his assessment. Foreign investors have focused their buying on index heavyweights in the financial services, IT, automobile and telecom sectors.
Expectations of tax reforms improve FPI sentiment
Manoj Purohit, Partner and Leader – Financial Services Tax, Tax & Regulatory Services at BDO India, said expectations of favourable changes in India’s capital market taxation framework have encouraged foreign investors to reassess their exposure to Indian equities.
He said industry bodies and various associations have been making representations to the government, seeking tax relief for long-term investors. Positive indications from the Finance Ministry about revisiting the taxation framework in the Union Budget 2027 have prompted some foreign investors to adopt a wait-and-watch approach rather than exit their positions.
According to Purohit, investors with significant unrealised gains on long-term holdings are reportedly postponing large stake sales while awaiting greater clarity on potential changes to equity taxation and transaction costs.
“Investors are now evaluating asset allocation decisions based on overall post-tax returns rather than considering only the tax outflow,” he said.
STT and LTCG rationalisation among key industry demands
Purohit said discussions among policymakers, regulators and industry stakeholders have increasingly focused on rationalising the Securities Transaction Tax (STT), simplifying capital gains taxation and providing potential relief under the Long-Term Capital Gains (LTCG) regime for offshore institutional investors.
Industry expectations include the possibility of abolishing the existing 12.5% LTCG tax on foreign investors’ equity investments. Industry bodies have also called for restoring the LTCG exemption on listed securities and rationalising LTCG, Short-Term Capital Gains (STCG) and STT provisions to improve tax certainty.
Such measures could lower transaction costs, improve market liquidity, deepen domestic capital markets and make India more competitive with jurisdictions offering lower or no capital gains taxes, Purohit said.
He added that the discussion around equity tax reforms has gained relevance as the government has already announced certain favourable tax measures for specified debt investments, including government securities. With the tax advantage between debt and equity investments narrowing, investors are increasingly assessing opportunities based on their overall post-tax returns.
Global cues could further support foreign inflows
Purohit said the improving global backdrop has also contributed to a more supportive environment for emerging markets, including India. Political developments in the US have raised hopes of a possible easing of aggressive trade measures, while expectations of lower global interest rates, currency stability and improved liquidity conditions have supported investor sentiment.
These developments could help ease some of the pressure from trade restrictions and improve business conditions for Indian companies in the third and fourth quarters, he said.
Purohit also pointed to the latest FPI activity, noting that foreign investors recorded their highest single-day investment since October 2025 on Monday.
However, he cautioned that tax reforms alone may not be sufficient to sustain foreign investor interest. Ease of doing business, corporate earnings growth, US trade policy, currency valuations and inflation trends will also play an important role in determining India’s attractiveness as an investment destination.
If the proposed tax changes materialise, they could strengthen investor confidence, attract foreign capital and reinforce India’s position as a preferred emerging-market destination, Purohit said.
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