Foreign portfolio investors invested ₹12,921 crore in Indian equities during the first week of August, following ₹20,200 crore of buying in July, according to CDSL data. This marks a reversal after four consecutive months of heavy selling, though FPIs have still withdrawn ₹2.41 lakh crore from Indian equities in 2026 so far. The latest inflows follow a challenging period where FPIs had withdrawn ₹49,340 crore in June, ₹32,963 crore in May, ₹60,847 crore in April and ₹1.17 lakh crore in March. As per PTI reports, the government is now considering raising the threshold for FDI projects requiring Cabinet Committee on Economic Affairs approval from ₹5,000 crore to ₹15,000 crore, which would reduce the number of large projects requiring Cabinet-level scrutiny and could shorten approval timelines. This proposal fits into a broader shift where policymakers are moving from attracting short-term foreign capital to securing long-term foreign investment as they seek to strengthen India's external accounts.
Foreign investors are showing increased interest in manufacturing-focused mid caps and small caps, while remaining cautious on traditional large-cap sectors such as consumer companies and IT services. In more than 100 interactions with foreign investors over the past month, Prasad said only one had moved to an overweight position. "Most of them have reduced the big underweight position somewhat," Prasad said in an interview with NDTV Profit. Some investors had moved from a large underweight to a smaller underweight, while others had moved from underweight to neutral. The foreign-investor response is becoming more selective, with traditional global funds remaining cautious while international funds that are not required to invest in India have started taking positions in specific companies. Some of those investors are looking at hard-asset businesses such as airports, ports and real estate, while consumer technology and fintech companies with distinct business models and strong growth are also attracting interest. The government is also considering changes to downstream investment rules, with one proposal under discussion that would exempt certain indirect foreign investments from obtaining fresh approvals if the upstream domestic entity has already secured government clearance.
According to Abakkus Investment Managers, India's Nifty 50 TRI delivered a negative return of 0.4% during the one-year period ending June 30, 2026, while South Korea's Kospi returned 103.2%, Taiwan's TAIEX gained 83.2%, Japan's Nikkei delivered 56.7% and the US Nasdaq returned 20.1%. However, the trend showed signs of reversing over the shorter term, with the Nifty 50 TRI gaining 2.4% during the one-month period, while the Kospi declined 22.2%. Abakkus expects foreign institutional investors who have booked profits and exited markets such as South Korea may consider India while deploying fresh capital over the next six to 12 months. The asset manager noted that India's recent underperformance was largely due to weak sentiment and valuation compression rather than deterioration in economic fundamentals.
The improving investor mood is being supported by corporate earnings resilience. Companies in the Nifty 50 that had reported at the time of the interview were showing profit growth of about 18% from a year earlier, according to Prasad. Aggregate net profit was about 7% above expectations, while EBITDA was about 3% ahead of estimates. The performance was stronger across Kotak Institutional Equities' broader coverage universe of about 325 stocks, with net profit about 20% above expectations, helped by oil and gas companies. Excluding oil marketing companies, the profit beat was about 10%, with Prasad noting that "numbers have been actually pretty decent." He also pointed to signs of resilience in both consumption and investment despite the broader macroeconomic uncertainty.
The recent buying has been supported by improving macroeconomic conditions, expectations of US interest-rate cuts, lower crude prices and a stable rupee. Brent crude was around $85 a barrel at the time of the interview, compared with expectations of about $120 a barrel three months earlier. Prasad said an average crude price of $85 a barrel for the full year would remain manageable for India. The immediate trigger for the recent policy push was a deterioration in India's external environment, with higher oil prices due to Iran war increasing the country's import bill and foreign investors becoming less supportive. The rupee came under pressure and the RBI was forced to intervene repeatedly in the foreign-exchange market. The government and RBI appear to have concluded that attracting capital through targeted measures was preferable to imposing broader economic costs through significantly higher rates. The emerging strategy reflects a recognition that not all dollars are equal, with policymakers needing capital that stays for years, builds factories, creates exports and generates future foreign-exchange earnings rather than simply attracting financial flows.
