Experts Hope For Tax Lifeline For FPIs As Foreign Money Bolts

Foreign institutional investors pulled Rs 19 billion in 2025 and another Rs 4 billion in the first month of 2026, a steady exodus that has rattled a market already struggling with currency weakness and post tax returns that look thin next to risk-free yields in developed economies.

This backdrop has turned the Union Budget 2026 into a high stakes moment, with investors hoping Finance Minister Nirmala Sitharaman delivers a framework that restores confidence in India as a long term destination for foreign money.

Nimesh Chandan, Chief Investment Officer at Bajaj Finserv Asset Management Limited, said, "This Budget comes at a very crucial juncture as far as markets are concerned. The most important area to watch will be the steps the Finance Minister takes to attract durable FDI and FPI flows into the economy."

Reports indicate that the government is examining targeted tax relief for foreign portfolio investors. Jefferies says such a move "could be a positive for equities" and serve as a tailwind for cash markets, although the firm stresses it is not its base case.

According to the Economic Survey 2025-26 tabled in the Parliament on Thursday, Foreign Portfolio Investment (FPI) flows in Financial Year 2026 remained volatile, leading to a net outflow of $3.9 billion as of December 2025. The outflow was driven by elevated uncertainty and increased capital allocation towards AI-centric markets such as the US, Taiwan and South Korea.

The sell-off from equities was mainly due to the "relative underperformance of Indian equities compared to other major markets, alongside trade and policy uncertainties, the depreciation of the Indian rupee, and abroad-based global risk-off sentiment amid elevated US bond yields, which weighed on FPI flows", it added.

There was a balance of payments (BOP) deficit of $6.4 billion in H1 FY26 compared to a surplus of $23.8 billion in H1 FY25, which was funded by a decline in foreign exchange(forex) reserves, it added.