Our lacklustre market: The fault, dear investor, is not in our stars

Foreign investors have rational and opportunistic reasons to pull money out but the India Story must refresh its appeal too

- SOMNATH MUKHERJEE

The contrast couldn't be starker. India’s macro fundamentals are running at great—nay, near-ideal—levels.

Retail inflation is low and the Reserve Bank of India (RBI) has just lowered its forecast for this financial year. The current account deficit (CAD) is holding at a comfortable 1% of GDP. The fiscis in good shape, with bond issuance for this year’s second half announced recently that confirms the government's commitment towards its glide path of fiscal consolidation. Arecent sovereign rating upgrade by S&P seems likea grudging acknowledgement ofa tautology by the rating agency, rather than a big achievement.

Yet, global investors don’t seem to be impressed. Foreign portfolio investor (FP) flows into equities stand ata negative $13 billion in 2025 so far. In the last five years, twice (in 2022-23 and 2024-25) have FPI outflows been at all-time-high levels. There is botha rationale and an opportunistic trigger for this.

The opportunistic trigger is very clear. Of all emerging market (EM) assets, one of the most liquid—indeed, perhaps the most liquid—are listed Indian equities. Thanks to burgeoning retail flows into stocks, both directly and via mutual funds (MES), India’s capital markets are among the busiest in the world. The wall of liquidity engendered by Indian retail investors lets FPIs (and to be fair, even Indian promoters) exit profitable-but-richly-valued Indian positions and rotate funds into other avenues with better price-value equations.