Tax incentives alone unlikely to reverse FPI outflows: Experts

WEAK EARNINGS, GEOPOLITICAL RISKS, RUPEE CONTINUE TO SPOOK FOREIGN INVESTORS

- CHRISTINA TITUS & KUSHAN SHAH

THE INDIAN FINANCIAL markets, already under pressure from sustained foreign portfolio investor (FPI) outflows, have come under further strain since the outbreak of the West Asia conflict.

Outflows have accelerated across both equity and debt markets since late February. FPIs have withdrawn ₹2.08 lakh crore from equities and net sold government securities worth ₹9,591 crore under the fully accessible route (FAR), according to CCIL data.

The trend follows a difficult FY26, when equity outflows reached a record ₹1.8 lakh crore, according to NSDL data. In the debt market, net purchases of government securities stood at just ₹10,356 crore, the lowest level in five years.

Market experts attribute the outflows to a combination of factors, including rupee weakness, geopolitical uncertainty, slowing corporate earnings growth and the absence of significant AI-driven investment opportunities in India.

In debt markets, higher global bond yields have reduced the relative attractiveness of Indian securities.

According to VK Vijayakumar, chief investment strategist at Geojit Investments, taxes on FPIs in India remain higher than in Malaysia, Indonesia and South Africa.