Foreign portfolio investors sold stocks worth Rs 1.42 trillion in 2025, with their sales hitting Rs 12,257 crore in the first four trading days of September.
Illustration: Dado Ruvic/Reuters
Rate cuts in goods and services tax (GST) set the stage for foreign portfolio investors (FPI) returning to India, although analysts note they would still be mindful of US tariffs, valuations, and tepid corporate earnings.
The biggest overhaul in the GST regime since its introduction in 2017 will from September 22 reduce taxes on everyday goods and shift to a two-rate structure to spur demand.
The primary reason for Indian markets underperforming in the past year is weak domestic growth, according to analysts. Corporate earnings have grown single digits for five straight quarters amid weak demand.
Analysts at HSBC expect that the new GST rates will assist growth to accelerate from the third quarter of FY26.
‘Consensus expects EPS (earning per share) to grow 14 per cent Y-o-Y (year-on-year) in 2026, and in our view the policies supporting growth along with a favourable base have eased the risks of earnings downgrades and set the stage for foreign investors to return,’ said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC in a coauthored note with Yogesh Aggarwal and Prerna Garg.
Foreign portfolio investors have sold stocks worth Rs 1.42 trillion in 2025, with their sales hitting Rs 12,257 crore in the first four trading days of September, according to NSDL data.
Several triggers are slowly emerging for Indian markets to attract foreign flows, said G Chokkalingam, founder and head of research at Equinomics Research.
Outflows by FPIs could reverse from the October quarter. GST cuts combined Budget 2025 lowering direct taxes; good monsoon rains and their impact on inflation; and interest rates set the stage for FPIs to consider India, he said.
“Corporate earnings should also pick up pace in this backdrop going ahead. The only concern is valuation (Nifty price-to-earnings ratio at 21x one-year forward) compared to peers like China will be on the minds of FPIs.
“A rate cut by the US Fed in the months ahead, which is a strong possibility, will go a long way in bringing FPI money to India,” Chokkalingam said.
Pramod Gubbi, cofounder of Marcellus Investment Managers, said companies passing on to consumers gains from input cost deflation didn’t result in demand, so the impact of GST rate cuts remains to be seen.
“At some stage, base effects and cyclical recovery as consumers pay down debt should help an earnings recovery, two-three quarters out. But for a sustained strong phase of earnings growth, we need many of these uncertainties that’s holding back animal spirits of the private sector to abate,” he said.
Feature Presentation: Aslam Hunani/Rediff
