FPIs hold ₹74 lakh cr in India; tax relief on govt securities may boost foreign flows

Foreign Portfolio Investors (FPIs) continue to play a pivotal role in India's financial markets, holding assets worth around ₹74 lakh crore and remaining a key channel through which global capital flows into the country, according to a new report by Edelweiss Mutual Fund. The report also highlights recent tax reforms that could make Indian government securities more attractive to overseas investors.

The study, titled "Decoding FPIs: The Global Capital Behind Indian Markets", notes that foreign investors remain deeply invested across Indian equities, debt instruments and other financial assets despite periodic bouts of market volatility.

One of the most significant developments for foreign investors is the government's decision to exempt capital gains tax, interest income tax and withholding tax on FPI investments in government securities from April 1, 2026. The report says the move is expected to improve post-tax returns and enhance the attractiveness of Indian debt markets.

Largest source of foreign capital

The United States continues to be the largest source of FPI investments in India. Holdings from US-based investors stand at approximately ₹31 lakh crore, substantially ahead of other jurisdictions such as Singapore, Luxembourg, Ireland and Mauritius.

The report points out that the domicile of an FPI does not always reflect the ultimate source of capital, but it remains an important indicator of where investment vehicles are based.

Category I investors dominate

A notable finding is the growing dominance of Category I FPIs, which account for nearly 94% of total foreign portfolio assets in India. These investors include sovereign wealth funds, central banks, pension funds, university endowments, insurance companies, banks and other regulated financial institutions.

Their share has increased from 93% in April 2021 to 94% in April 2026, suggesting that long-term institutional capital continues to form the backbone of foreign participation in Indian markets.

Equity selling offset

The report shows that FPIs have actively rebalanced their portfolios in recent years. Between CY22 and CY25, foreign investors sold around ₹3.7 lakh crore worth of secondary market equities. However, this was partly offset by investments of approximately ₹2.6 lakh crore in initial public offerings (IPOs) and ₹2.8 lakh crore in debt securities.

This trend indicates that while foreign investors have become selective in secondary market stocks, they continue to see opportunities in India's primary market and fixed-income segment.

Volatile flows, strong long-term presence

FPI flows have remained volatile over the years, influenced by factors such as interest rates, valuations, macroeconomic developments and global risk appetite. The report notes that foreign investors frequently shift allocations between equities and debt depending on market conditions.

Despite these fluctuations, FPIs remain deeply embedded in India's capital markets. According to the report's analysis, FPI equity investments have generated an estimated 6.8% annualised dollar-denominated XIRR since 2012, underlining the long-term appeal of Indian equities for global investors.

With India's economy continuing to expand and recent tax incentives improving the investment landscape, the report suggests foreign investors are likely to remain an important source of capital for both the country's equity and debt markets in the years ahead.