Foreign institutional investors have withdrawn ₹4,23,633 crore from Indian markets since April 2024, according to reports from NDTV Profit. This represents a significant shift from India's previous attractiveness as a global emerging market destination. The outflows have accelerated through 2025 and into 2026, with foreign investors beginning meaningful withdrawals from late 2024 and continuing through the second half of 2025. As reported by NDTV Profit, this trend reflects a fundamental re-evaluation of India's investment appeal amid mounting tax burdens and currency pressures.
India's taxation framework has evolved into a complex system that disproportionately impacts foreign investors. The Securities Transaction Tax (STT) remains at 0.1% on every delivery-based equity transaction, while long-term capital gains tax was raised from 10% to 12.5% in the July 2024 Union Budget. According to NDTV Profit, this dual taxation structure creates a situation where foreign investors can lose money in dollar terms while still owing capital gains tax in India if rupee values increase. The original 2004 bargain between transaction taxes and capital gains exemptions has effectively been broken, with both taxation components now operating simultaneously at increased rates.
The rupee's depreciation from around ₹83 to ₹95 against the dollar has significantly impacted foreign investor returns. As reported by NDTV Profit, this currency movement creates a situation where investors can lose money in dollar terms while still facing tax obligations on rupee gains. The analysis demonstrates that even when a portfolio rises 10% in rupee terms, after tax and currency depreciation, foreign investors end up with only $95 on an original $100 investment, representing a $5 loss in dollar terms. This currency loop effect compounds the tax burden and creates additional friction for foreign allocators.
Despite foreign outflows, domestic mutual fund participation has increased significantly, providing market stability. According to NDTV Profit, household financial savings in mutual funds rose sharply from ₹0.6 lakh crore in 2020-21 to ₹4.7 lakh crore in 2024-25, with their share in gross household financial savings jumping from 2.1% to 13.1%. This domestic participation has helped cushion the market against sharper corrections and demonstrates what the report describes as 'financial maturity' among Indian households. However, this trend also means domestic investors are increasingly absorbing the risk that global allocators are reducing exposure to.
India's tax structure stands out negatively compared to regional competitors. As reported by NDTV Profit, Singapore and Hong Kong levy no capital gains tax on equities, while Taiwan exempts most foreign equity gains from local capital gains taxes. The United States and United Kingdom similarly exempt non-resident foreigners from capital gains tax on most stock holdings. India is the only major emerging market that combines transaction taxes with hiked capital gains taxes and taxes foreign investors on rupee gains rather than dollar returns. This competitive disadvantage becomes particularly pronounced when global capital rotates toward AI-driven equity stories, where India faces structural challenges given its limited semiconductor and frontier-AI exposure.
