The Indian stock market is experiencing a powerful turnaround. After a multi-month capital outflow lasting from January to May 2026, during which foreign funds withdrew approximately $21 billion from local securities, the dynamics have radically changed. In the week from July 5 to July 9, foreign investors poured $1.3 billion into Indian stocks — the largest weekly inflow since June 2025. The culmination was a surge on Friday, July 10, when the volume of purchases in the domestic market reached $272 million.
Turning Point Factors: RBI Policy and Tax Reform
The key catalyst for the return of capital was the decisive measures taken by the Reserve Bank of India (RBI). The regulator opened dollar-rupee forward contracts for new FCNR (B) deposits, making them more attractive to non-residents. Simultaneously, effective April 1, 2026, a law abolishing the capital gains tax for foreign portfolio investors came into force — it applies to the sale of shares and income from government bonds. These steps sent a clear signal about the stability of the rupee and the predictability of returns, which is exactly what global funds needed.
Notably, as early as two weeks before June 30, foreigners invested about $1.5 billion in shares of Indian banks and financial companies. According to the National Securities Depository, demand completely offset sales from previous months, bringing a net inflow of $357 million to the banking sector in June alone. This suggests that the recovery did not begin spontaneously, but rather from the most liquid and protected sectors.
Goldman Sachs Forecasts: Growth Potential Remains
Analysts at Goldman Sachs have revised their outlook on the Indian market upward. In their assessment, global funds still have significant room to return to Indian stocks due to a substantial underweight in their portfolios. Despite ongoing market participant concerns about a period of downward earnings revisions and a less favorable growth-to-valuation ratio compared to other markets, the growing certainty of a domestic recovery could serve as an incentive to begin pricing in the upcoming upturn in advance.
The bank expects the Nifty 50 index to reach 26,500 points by June 2027 — approximately 10% above current levels. This is a conservative but realistic target, given the current macroeconomic backdrop.
My comment as an analyst: The return of foreign capital to India is not merely a reaction to tax incentives. It is a structural shift. Global funds are seeking an alternative to the overheated markets of the US and China, where the risks of regulatory changes are high. India offers a unique combination of a stable currency, reforms, and a demographic dividend. However, investors should remember that the current inflow may be partially speculative, and a correction of 5–7% after such a rally is a highly probable scenario.