Budget 2026: Key triggers FPIs may track amid Rs 41,000 crore January outflows

With foreign equity outflows topping Rs 41,000 crore in January, the worst-monthly outflows since January 2025, all eyes are on the Union Budget 2026. From an foreign portfolio investor (FPI) perspective, market participants said the Budget will be closely watched for signals on tax certainty, regulatory stability and ease of capital mobility.

Hitesh Jain of YES Securities (Institutional Equities) said some sort of concessions to FPIs, either in terms of long-term capital gains (LTCG) or Securities Transaction Tax (STT), are likely. In a BTMarkets survey, Jain noted that some sovereign wealth funds are already exempted from LTCG, provided their investments meet certain conditions.

Vipin Upadhyay, Partner, King Stubb & Kasiva, Advocates and Attorneys said FPIs will look for clarity on the treatment of capital gains, withholding tax, and the scope of the General Anti-Avoidance Rules (GAAR), particularly in light of recent enforcement actions that have revived concerns around retrospective interpretation and tax ambiguity.
 
"Post the Tiger Global episode, there is heightened sensitivity to how offshore fund structures, pass-through vehicles, and indirect transfers are scrutinised by tax authorities. Any move towards clearer safe-harbour thresholds, time-bound assessments, and reduced litigation would go a long way in restoring confidence."

Data showed FPIs have sold Rs 41,280 crore worth equities in January so far. This has been the highest monthly outflows since Rs 78,027 crore in January 2025, the month Donald Trump took oath as the 47th US President.

On ease of doing business, Upadhyay told BTMarkets that FPIs are keen on simplified compliance, faster dispute resolution mechanisms, and consistency between policy intent and tax administration, which may signal India remains committed to being a predictable and investor-friendly jurisdiction rather than just a high-growth market.

Sunny Agrawal, Head - Fundamental Research at SBI Securities said given the persistent outflow by FIIs, there are high chances that government may take either one or more of the following measures: "(a) reduce LTCG, (b) increase in exemption limit for computation of capital gains and (c) reduce STT on cash transactions. The motive is to encourage longer term investment and reduce speculative trades where majority of the retail investors are witnesses erosion of the capital."

Agrawal said the decision is expected to be revenue neutral as lower tax rate with higher participation coupled with increased base could offset the impact. STT, with an annual collection of Rs 20,000-21,000 crore, is one of highest implicit cost for investors which may be reduced, he said.

"This could be compensated by higher volume and broader participation and will encourage investments in passive products like ETFs which carries lower risks," he said in the BTMarkets survey.

Kamal Poddar, MD at Choice International said foreign investors remained cautious due to trade uncertainty, global rates and geopolitics.

"While the Budget 2026 cannot resolve trade deals, it can reinforce credibility through fiscal discipline and export-focused incentives. Narrative matters here.," the expert said.