New Delhi: With foreign capital continuing to ebb from Indian markets, experts are hoping that the Union Budget 2026 will provide targeted measures to revive investor confidence and stem the outflow of Foreign Portfolio Investments (FPIs). Financial Year 2026 has already witnessed significant volatility, with a net FPI outflow of $3.9 billion as of December 2025, signaling growing caution among overseas investors.
Data from market trackers show that foreign institutional investors withdrew ₹19 billion in 2025, followed by an additional ₹4 billion in January 2026, a steady exodus that has rattled markets already challenged by currency weakness and post-tax returns that look thin relative to risk-free yields in developed economies.
Industry veterans believe the upcoming Budget will be a critical moment to re-establish India as a credible destination for long-term foreign capital. Nimesh Chandan, Chief Investment Officer at Bajaj Finserv Asset Management, said, “This Budget comes at a very crucial juncture for markets. The key focus will be the steps the finance minister takes to attract sustainable FDI and FPI flows into the economy.”
Reports suggest that the government is exploring targeted tax relief for FPIs, a move that could rejuvenate equities and provide much-needed liquidity to domestic cash markets. Analysts at Jefferies noted that while such incentives would be positively received, they may not be the central assumption driving investor expectations.
The Economic Survey 2025–26, tabled in Parliament on Thursday, underscored the persistent volatility of FPI flows, attributing the net outflow to a combination of trade and policy uncertainties, Indian equity underperformance relative to other global markets, and the depreciation of the rupee. In addition, capital allocation trends have shifted toward AI-focused markets such as the U.S., Taiwan, and South Korea, drawing investment away from India.
The survey also highlighted broader macroeconomic concerns. The balance of payments (BOP) deficit widened to $6.4 billion in H1 FY26, a sharp contrast to the $23.8 billion surplus recorded in H1 FY25, financed in part by a decline in foreign exchange reserves. Analysts warn that continued FPI outflows could intensify pressure on currency stability and liquidity conditions if not addressed promptly.
With Finance Minister Nirmala Sitharaman set to present the Budget, markets will be scrutinizing any policy measures aimed at reversing the foreign capital flight, including tax incentives, regulatory easing, or other investor-friendly frameworks. For foreign investors and domestic equity markets alike, Budget 2026 could prove a defining moment for India’s global investment narrative.