Since 1 April 2024, foreign portfolio investors have net taken ₹2.08 lakh crore out of Indian securities. That is NSDL's own total: +₹20,018 crore in FY25, −₹1,52,691 crore in FY26, −₹75,806 crore in FY27 to 29 September 2026. Underneath it, ₹4.27 lakh crore left Indian equities and ₹2.16 lakh crore came into Indian bonds.
Six questions follow from that number.
Why not India?
Because a foreign investor is paid in dollars, and India has been losing money in dollars.
The Nifty is down about 12.8% in 2026 in rupees. The rupee has lost about 7% against the dollar this year, touching 96.82 in May and trading near 96 now. Put together, a dollar investor in the Nifty is down roughly 19% this year before costs.
The rupee is not incidental. It is the loop. ₹2.08 lakh crore leaving is about $22 billion of dollar demand; that weakens the rupee, which cuts the dollar return of everyone still invested, which prompts the next sale. Brent above $100 adds a second seller of rupees through the oil import bill. The RBI has sold dollars to slow the fall, heavily on 21 May and again this week, but intervention spends reserves; it does not reverse the flow.
Are Indian markets not cheap and rewarding?
Cheap, yes. Rewarding in dollars, no.
The Nifty trades at about 19.2x trailing earnings, 13% below its five-year median and the cheapest it has been in five years. It is cheaper than the S&P 500 at about 26x. If cheapness brought money back, it would be coming back now. FPIs sold ₹20,974 crore of Indian equities in September.
What foreign money is paying for elsewhere is earnings growth and the AI cycle. Korea's KOSPI trades at 12.3x trailing earnings and its forward P/E is at an all-time low because earnings forecasts have outrun the index; Samsung and SK Hynix are 60% of the market. Japan's Nikkei is at 19.0x, the same multiple as ten years ago, with the index up four times on earnings alone. Hong Kong is at 12.2x, slightly above its long-run median of 10.3x. Taiwan's TAIEX is at about 25.6x after a 67% rally this year, the one market in Asia that has re-rated on the AI cycle.
So the Nifty is cheaper than the US and cheaper than its own history, and still more expensive than Korea, Hong Kong and Japan on trailing earnings, in a year when it has delivered the worst return of the lot.
Why not Indian bonds then?
India pays the highest sovereign yield among major markets. The 10-year Government of India bond yields 7.17%. The US Treasury pays 5.24%, the UK 5.38%, Australia 5.38%, Korea 4.45%, Germany 3.61%, Japan 3.10%, China 1.68%. Only Brazil, at 14.1%, pays more.
And FPIs sold ₹9,192 crore of Indian government bonds through the fully accessible route in September, the first monthly outflow since March.
The arithmetic is the same as for equities. A 7.17% coupon minus 7% of rupee depreciation is about zero in dollars. A 5.24% Treasury is 5.24% in dollars with no currency risk. Hedging the rupee costs 2 to 3% a year in forward premium, which takes the hedged Indian yield to roughly the Treasury yield with more risk. The India-US spread of 193 basis points is about half what it was through most of the 2010s.
Bonds did work for a while. In FY25, ₹1.43 lakh crore came into Indian debt and more than covered the equity selling. From April to August 2026, after the government removed withholding tax on specified government securities, FPIs bought ₹60,332 crore of FAR bonds. Then Bloomberg deferred its index-inclusion decision on 31 July, oil crossed $105, US yields went to 5.3%, and the buying reversed. Policy incentives bought a few months. Oil and the Fed overrode them.
Where, if not India?
NSDL records what crosses India's border, not where it lands. What the destination data shows for the same period:
US equities. Foreigners net bought a record $942 billion of US stocks in the twelve months to July 2026, with $426 billion in the June quarter alone (US Bureau of Economic Analysis, reported by the Financial Times). India's ₹2.08 lakh crore is about 2% of that.
Cash. US money market funds took about $450 billion year to date by early September (LSEG Lipper).
Treasuries. Foreign purchases were $188 billion in Q2 2026 against $314 billion in Q1, so new buying slowed; total foreign holdings are still at a record $9.49 trillion.
Asia. Japan took a half-year record $60 billion of foreign equity buying. Korea and Taiwan drew record flows on semiconductors.
What those alternatives returned this year, in dollars, is the actual answer to "why not India". Year-to-date 2026 index returns in local currency (J.P. Morgan Asset Management Guide to Markets, 29 September 2026) with the currency move against the dollar applied:
| Market | Index, local currency | Currency vs USD, YTD | Approximate USD return | Trailing P/E |
|---|---|---|---|---|
| Korea (KOSPI) | +63.0% | +6.2% | about +73% | 12.3x |
| Taiwan (TAIEX) | +67.1% | −1.6% | about +64% | 25.6x |
| Japan (Nikkei 225) | +32.0% | −0.5% | about +31% | 19.0x |
| US (S&P 500) | +12% to +13% | none | about +12% | 26x |
| Hong Kong (Hang Seng) | −1.7% | pegged | about −2% | 12.2x |
| India (Nifty 50) | −12.8% | −7% | about −19% | 19.2x |
Taxation is not included. A Korean equity sold today has returned about 73% to a dollar investor this year at 12x earnings. An Indian one has lost about 19% at 19x. That is a 90-point gap, and it is what a global allocator sees on the screen. Cheap, in this table, is not India.
When will they come back?
Not at the scale they left, and not on any visible timeline. Three reasons.
The money has been redeployed. A ₹90 lakh crore US equity trade does not need India to rebalance. India moved from a core emerging-market position to a residual one, and the marginal EM dollar is going to Korea and Taiwan.
The trigger is external. Every episode of FPI buying in the last two years, FY25 debt, April to August 2026 debt, was a stable rupee plus a policy carrot. Every reversal was oil, US yields or the Fed. The next Fed meeting is 28 October and the market is pricing a further hike, not a cut. SRIA's first tariff determination is due 18 October.
Domestic money is doing the holding. Mutual funds deployed over ₹5 lakh crore in FY26, a record, with SIPs near ₹32,000 crore a month. That is why the index is at a five-year-low multiple instead of a crash, and it also means foreign buyers will not find distressed prices when they return.
What would bring some of it back, in order of how much it matters: a Fed turn that takes the US 10-year toward 4%; oil under $80 and the rupee holding a level for two to three months without RBI selling (debt returns first, equity after); two consecutive quarters of Nifty earnings growth above 15%; and SRIA passing without a tariff on India.
What do we need to do for them to come back?
Two things, one we talk about and one we do not.
Regulatory and tax certainty. This is the one we do not talk about enough. The July 2024 budget raised long-term capital gains tax on listed securities to 12.5% and short-term to 20%, and removed indexation. FPI disclosure norms were introduced in August 2023 and amended in March 2024. Securities transaction tax on futures was raised to 0.05% for FY27. On 7 August 2026 the government and SEBI met large FPIs, custodians and consultants, with a major US asset manager leading the delegation. What the FPIs asked for tells you what is keeping them away: remove LTCG on listed securities, cut STT on derivatives, allow digital KYC, speed up tax refunds, and give explicit protection for pre-2017 Mauritius-routed investments after the Tiger Global case. A foreign fund that cannot predict its after-tax return, or whether a ten-year-old investment will be reassessed, does not price India at 19x. It prices in the uncertainty and goes to Korea at 12x. The government said it is "seeking suggestions on simplifying regulations". The FPIs have given the list. Acting on it is the fastest lever we hold.
What we build. When India opened in 1991, the bargain was our talent for their capital, energy and technology. AI is renegotiating the talent half; the world that depended on Indian services is finding ways to automate it. We still import the other three. Using AI is productivity. Building AI, and technology, that the world pays us to use is what changes the earnings growth number in the table above, and that number is the only thing foreign capital has ever come back for.
Foreign money does not return for a cheaper Nifty. It returns for a currency that holds, rules that do not change after the money is in, and companies whose earnings grow faster than the rupee falls. The first is partly oil. The second is entirely ours. The third is what we build.
Sources: NSDL FPI Net Investment (Financial Year), to 29 September 2026; Trading Economics 10-year yields and USD/INR, USD/JPY, USD/KRW, 29 to 30 September 2026; J.P. Morgan Asset Management Guide to Markets Asia, 29 September 2026 (index and currency YTD); StatMuse (S&P 500 YTD); IndexPE (Nifty P/E), Siblis Research (Nikkei, KOSPI), GuruFocus (Hang Seng, S&P), MacroMicro (TAIEX P/E); US Bureau of Economic Analysis via Financial Times; US Treasury TIC via Wolf Street; LSEG Lipper via Reuters; Nikkei Asia; Business Standard (FAR bond flows, June 2026 debt inflows, March 2026 MF data); Free Press Journal (7 August 2026 government-FPI meeting); The Wire (rupee 2026). USD returns are approximate: local index return compounded with the currency move, before tax and costs.
For educational purposes only. Not investment advice. Intrynsic.ai is not a SEBI-registered investment adviser.