Global funds have once again turned their attention to the Indian stock market, recording the largest weekly capital inflow since June 2025. During the period from July 5 to July 9, foreign investors purchased Indian securities worth $1.3 billion, signaling a clear shift in sentiment after a prolonged period of outflows.
Particularly notable was the surge in activity on Friday, July 10, when foreign funds spent $272 million on purchases in the domestic market. This dynamic sharply contrasts with the trend in the first half of 2026: from January to May, foreign investors withdrew approximately $21 billion from Indian equities.
Factors Behind the Reversal: RBI Policy and Tax Relief
The key catalyst for the return of capital has been the measures taken by the Reserve Bank of India (RBI). The regulator opened dollar/rupee currency swaps for new FCNR (B) deposits, making them more attractive to non-residents. Additionally, amendments to tax legislation came into effect on April 1, 2026, abolishing the capital gains tax for foreign portfolio investors when selling government bonds.
These steps have already yielded tangible results. According to data from the National Securities Depository, net inflows into India's banking sector amounted to $357 million in June, fully offsetting sales from previous months.
Outlook and Potential: Goldman Sachs Sees Room for Growth
Analysts at Goldman Sachs believe that the current inflow is just the beginning of a large-scale return of foreign capital. According to their assessment, global funds retain significant "reserves" to increase their share in Indian assets, especially amid the stability of the rupee and improved earnings forecasts.
"Despite lingering concerns about downward earnings revisions and a less favorable growth-to-valuation ratio compared to other markets, growing certainty about the domestic recovery could incentivize market participants to price in the upcoming upturn in advance," the report notes.
Goldman Sachs also expects the Nifty 50 index to reach 26,500 points by June 2027, approximately 10% above current levels.
Analyst Commentary: The capital flow into the Indian market is not merely a reaction to local stimuli but part of a global shift of funds from overvalued Western markets in favor of rapidly growing Asian economies. However, investors should consider that the high volatility of the rupee and India's dependence on energy imports still pose significant risks.