'It's not AI, it's Arrogant India': Veteran investor warns India is losing FPIs' trust

Ajit Dayal, veteran investor and founder of Quantum Advisors, on Monday warned that foreign portfolio investors (FPIs) are increasingly dismayed and irritated with India. 

Writing for Financial Express, he said that in more than three decades of dealing with global capital, he has never witnessed such widespread frustration with the country.

The investor believes India's biggest challenge is no longer merely global market conditions, but a domestic policy environment that increasingly discourages foreign investment. "The dismay, disinterest, and irritation with India is led by local, home-grown factors," he said. 

Dayal, who has over 40 years of experience in investment management and financial services, accused Indian policymakers of assuming that the country's economic potential makes it indispensable to global investors, even as taxation, currency policies, inconsistent regulations and governance concerns erode investor confidence.

"Having started Quantum Advisors in 1990 as India's first institutional research house aimed at encouraging Foreign Portfolio Investors to allocate capital to India, I can state with confidence that, in 36 years of interaction with FPIs, we have never seen such dismay and irritation with India," Dayal wrote.

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His assessment comes as foreign investors continue to withdraw money from Indian equities. FPIs withdrew ₹48,056 crore from equities in October through October 25, taking net outflows in 2026 to ₹3.08 lakh crore. 

The investor acknowledged the extraordinary transformation of India's economy and capital markets since liberalisation. He, however, argued that India's historical ability to attract foreign investment through global crises should not be mistaken for a permanent guarantee of capital inflows. 

In his assessment, the current dissatisfaction among investors goes beyond cyclical factors such as elevated oil prices, rising global interest rates, or India's limited exposure to the global artificial intelligence investment boom. 

"The disappointment is that India could do far better on respecting foreign capital," he wrote. "As hosts we give the clarion call of welcoming the world to our doorsteps and, once in, we punish the FPIs who wish to participate – and help – in the growth of the Indian economy."

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Capital gains taxes and weak rupee under fire

Dayal said that while it is true that India is an exciting economy with great potential for decades to come, it needs to be welcoming. "Policies that are based on extraction by way of taxation of capital gains or an outdated mentality of boosting exports by depreciating the currency (which is a tax on the total capital that an FPI or FDI invests in Inda) has hurt the required rate of return – whether FPI or FDI," he said.  

He criticised the taxation of foreign investments, particularly those made by international pension funds and endowments. He pointed out that several such institutions enjoy tax-exempt status in their home countries. Capital gains taxes imposed on their Indian investments therefore represent an additional cost that cannot necessarily be offset against tax liabilities elsewhere.

The veteran investor also criticised the tax treatment of certain internal portfolio reallocations, where moving an India investment between international and emerging-market investment pools can trigger a taxable transaction.

He argued that retrospective tax demands could create further difficulties when an existing investor is required to account for liabilities associated with beneficiaries who have already redeemed their investments.

Dayal warned that concerns over governance are increasingly influencing foreign investors' decisions. He compared India's historical stock market performance with China's, arguing that stronger investor protections and governance had helped Indian equities deliver superior returns despite China's faster economic expansion.

However, he said that India's historical advantage could weaken as foreign investors become increasingly concerned about uncertain regulations and corporate conduct. The concerns are particularly significant at a time when global capital is flowing towards artificial intelligence-related opportunities.

The Quantum Advisors founder acknowledged that India's limited AI investment story is a disadvantage, but argued that governance is a more fundamental issue because it directly affects investor confidence.

'Grease of doing business'

Beyond financial regulations, Dayal highlighted the experiences of Indian-origin executives working at major international investment institutions. Many of these executives, he noted, have encountered bureaucratic difficulties and corruption while handling personal matters in India, including closing accounts or settling the estates of deceased family members.

"Tales of hardships of those who have family who own businesses in India add to the testing of the validity of the "India story" converts the India story from one of "ease of doing business" to the "grease of doing business"," he stated. 

Dayal also said that Indian policymakers have become overly confident about the country's appeal to international capital.

Across the political spectrum, he said, "the disrespect for consistency of rules, the tampering of laws and the arrogance that breeds from an assumption that India has a TINA (There Is No Alternative) factor has resulted in the current state of irritation, disappointment and dismay with India amongst the FPI community." 

The veteran investor said that rather than seeing inflows of US$ 100 billion a year, we are seeing redemptions of US$ 25 billion a year. "And it is not due to the AI we read about but due to the other AI we don’t write about: Arrogant India."

"It is time to be humble and welcome and take steps to respect our FPI guests," Dayal wrote, adding that if the FPIs make an effort to study, analyse and invest in India, they deserve a Return on Effort which is not decapacitated by a capital gains tax or an ancient mindset of forcibly weakening the Indian Rupee to shelter exports." 

"In a world where imports of goods are so last-century thoughts, we need to build an ecosystem to attract capital flows, without the punishment of capital blows."