The figures arriving from India’s stock market on Sunday, 18 October, tell an uncomfortable story. Foreign portfolio investors have sold ₹52,100 crore worth of Indian equities this month. Their net selling for 2026 has reached ₹3.12 lakh crore.
At almost the same time, the International Monetary Fund raised its forecast for India’s economic growth to 7 percent. The Reserve Bank of India expects 7.1 percent.
I find the contrast more revealing than either figure on its own. An economy can attract praise from international institutions while its stock market loses the confidence of foreign investors. Growth forecasts describe the economy’s expected expansion. Share prices depend on future corporate profits and what investors are prepared to pay for them. India is discovering how far apart those judgments can move.
The selling is no longer a passing disturbance
Foreign portfolio investors bought ₹20,200 crore of Indian shares in July and another ₹29,631 crore in August. The direction changed in September, when they withdrew ₹35,861 crore. October has been worse.
According to figures reported by Press Trust of India on 18 October, foreign equity selling had reached ₹52,100 crore for the month. Total net withdrawals during 2026 stood at ₹3.12 lakh crore, compared with ₹1.66 lakh crore throughout 2025.
These are net portfolio flows. They do not mean that every foreign investor has abandoned India or that multinational companies are dismantling their Indian operations. Portfolio investment moves more easily than money committed to factories or other long-term projects. Fund managers can sell listed shares and redirect their portfolios quickly.
Still, the scale matters. It suggests that foreign investors are not simply reacting to one disappointing earnings announcement. They are reassessing the returns available from Indian equities against competing opportunities.
Washington has changed the calculation
India’s problem begins partly in the US bond market. In October, the yield on the benchmark ten-year US Treasury reached approximately 5.24 percent, according to the Financial Times. Higher energy prices and borrowing requirements have helped push yields to levels that attract international investors.
A US government bond offers an interest payment backed by the federal government, although its market price can still fluctuate when interest rates change. Indian shares offer a different proposition. They can produce much higher returns, but their prices can fall. Foreign investors also face currency movements.
Imagine a dollar-based investor whose Indian shares gain 10 percent. If the rupee loses 7 percent against the dollar over the same period, the investor’s dollar return falls to approximately 2.8 percent before dividends, fees and taxes.
The investor has made money in rupees but earned less than the illustrative yield available on a US Treasury. Actual portfolio decisions involve expected future returns, not guaranteed outcomes. Currency hedging can also change the calculation. Yet the example shows why India’s economic growth may no longer provide sufficient compensation for the risks foreign investors perceive.
A higher American bond yield changes the price of risk across international markets.
Oil creates a problem India cannot easily control
The other pressure arrives through energy imports. India buys most of its crude oil from abroad. International oil prices therefore influence its import bill and the demand for foreign currency.
Brent crude closed near $109.86 a barrel on 16 October, according to Reuters reporting published on Sunday. At such prices, the cost spreads beyond petrol pumps. Transport becomes more expensive. Some manufacturers face higher input costs. If businesses pass those costs to customers, inflation can become more difficult to contain.
The rupee adds another complication. Oil is generally priced in dollars. When the rupee depreciates, Indian importers need more local currency to pay for the same dollar-priced cargo.
The Reserve Bank of India must then weigh the need to contain inflation against the danger that tighter monetary conditions could slow economic activity.
I have examined a related problem in Pakistan in Hormuz Crisis: How Pakistan Is Already Paying the Price. The two economies differ enormously in size and financial resources. Their dependence on imported energy nevertheless gives them a common exposure to Middle Eastern instability.
A disruption need not stop every oil tanker to affect prices. Higher shipping costs or fears of interrupted supply can change the price importers pay. For a stock market investor, such pressures can weaken the outlook for corporate earnings even before economic growth slows.
A 7 percent economy does not guarantee a profitable stock market
The IMF’s October forecast offers India considerable encouragement. It raised expected growth for the 2026–27 fiscal year from 6.4 percent to 7 percent, citing resilient domestic demand and strength in services. The RBI’s forecast stands slightly higher at 7.1 percent.
Those estimates help explain why India remains one of the world’s most important economic growth stories. But GDP is not a measure of the return earned by shareholders.
A company can increase sales while its profit margins shrink. Higher energy expenses can absorb revenue gains. Rising borrowing costs can reduce what remains for investors. Valuation matters too.
Consider a company whose annual earnings rise by 15 percent while investors reduce the price-to-earnings multiple they are willing to pay from 30 to 24. Despite the earnings improvement, the implied share price falls by 8 percent.
That calculation is illustrative, not a description of a particular Indian company. It exposes a weakness in the assumption that strong national growth must produce strong stock market performance. International investors purchase claims on future corporate earnings. They do not purchase India’s GDP directly.
India is competing for money with other Asian markets
I think the comparison with US Treasury bonds explains only part of the selling. Foreign investors also face a choice within Asia.
South Korea and Taiwan offer more direct exposure to the global semiconductor industry. Their leading companies occupy important positions in the manufacture of chips and other equipment used in artificial intelligence systems. India’s listed market has relatively limited direct exposure to the companies leading advanced semiconductor manufacturing.
The difference matters when global investment managers decide where they expect earnings to rise fastest. Reuters reported on 14 October that Indian companies linked indirectly to AI infrastructure had produced striking share-price gains even as the broader Nifty 50 remained weak. Optical-fibre suppliers and power-equipment companies benefited from expectations of increased infrastructure spending.
India is participating in the AI investment cycle, but its listed market has a different structure from those of Taiwan and South Korea. The comparison requires one qualification.
The enthusiasm surrounding AI has also created instability. South Korean technology shares have faced sharp reversals, and Reuters reported that Indian benchmarks rallied strongly on 15 October when weakness in AI-related shares elsewhere encouraged hopes of capital returning to India.
Foreign investors have not discovered a permanently safer destination in North Asia. They are moving between markets whose earnings prospects and valuations change rapidly. India’s challenge is to convince investors that its companies offer attractive returns at current prices, not merely that its economy will continue expanding.
Taxes add friction, but they do not explain everything
The Indian Express has also drawn attention to the costs imposed on foreign portfolio investors. India levies securities transaction tax on certain market transactions. Capital gains can attract additional taxation.
Government guidance on the taxation of non-residents describes a 20 percent short-term capital gains tax on qualifying securities where STT has been paid. The general long-term rate for applicable gains is 12.5 percent, subject to the relevant rules. The final burden depends on the investor’s circumstances and applicable treaty provisions. See the Indian Income Tax Department’s guidance on share sales.
Taxes reduce the amount an investor keeps after a profitable transaction. They can make a market less appealing to funds that trade frequently. But taxation is not a complete explanation for October’s selling.
India’s tax structure did not suddenly emerge in September. The sharp change in foreign flows occurred alongside major changes in international bond yields and energy prices. It would therefore be misleading to suggest that reducing capital gains tax would automatically bring foreign investors back. Predictable rules are important. So are company earnings and the exchange rate.
Domestic investors have become India’s financial buffer
India’s mutual fund industry has grown into a major source of stock market demand. Households investing regularly through mutual funds create a domestic buyer base that was less substantial during earlier episodes of foreign selling.
Such investment can help the market absorb withdrawals without forcing companies to depend entirely on international shareholders. The protection has limits.
Domestic buying does not make shares immune to falling profits or excessive valuations. Nor does it guarantee that every stock sold by a foreign investor can be purchased without a price adjustment. A growing domestic investor base changes the structure of India’s financial markets. It does not remove the importance of global capital.
What does the reversal mean for Pakistan?
From Karachi, I see an important lesson in the Indian experience. A country can report improving economic indicators while its financial markets confront a different set of pressures.
Pakistan has faced a related divide between macroeconomic stabilisation and the experience of households. I discussed it in Petrol Is Rs387 a Litre. Why Doesn’t Pakistan’s Improving Economy Feel Better at Home?.
The Indian episode also brings international capital allocation into focus. When American interest rates rise, investors reassess the compensation they require for holding emerging-market assets. Countries with external financing needs may find borrowing more expensive. Oil importers face an additional burden when energy prices rise.
Pakistan has a much smaller foreign exchange reserve buffer than India and a different composition of capital flows. Its economy cannot be treated as an identical case. Yet the underlying financial mechanism is familiar to anyone working with international payments.
Importers need dollars to settle invoices. A changing exchange rate alters the local-currency cost of those obligations. Higher financing costs then reach companies through their banking arrangements. A growing economy can still face external pressure when the international price of capital changes.
The test will come when global conditions improve
I would hesitate to describe the foreign selling as a vote of no confidence in India’s economic future. The IMF continues to expect strong growth. India’s domestic market is large, and its services industry remains competitive.
The evidence supports a narrower conclusion. Foreign investors currently see more risk in Indian equities than they are willing to accept at prevailing valuations. US bond yields provide an attractive alternative. Oil prices threaten earnings and inflation stability. Competing Asian markets complicate the decision further.
India cannot control American Treasury yields or the price of Brent crude. It can improve the predictability of its own policies and reduce its dependence on imported energy over time.
The decisive test lies ahead. If foreign investment returns when US yields fall and oil prices ease, the current withdrawals will look largely cyclical. If selling continues after those pressures recede, India will have to confront a more difficult question about company valuations and its ability to attract international equity capital.
For now, the ₹3.12 lakh crore outflow tells us something precise. Foreign investors still recognise India’s growth. They are less certain that its stock market offers the best place to profit from it.