Global investors are returning to the Indian stock market, recording the largest weekly capital inflow since June 2025. Between July 5 and 9, foreign funds purchased Indian securities worth $1.3 billion. This is a strong signal indicating a shift in sentiment after a prolonged period of outflows.
In just one Friday, July 10, foreign investors spent $272 million on buying stocks in the domestic market. For comparison, from January to May 2026, non-residents withdrew about $21 billion from Indian equities. The current surge in demand fully compensates for sales in previous months, especially in the banking sector, which saw a net inflow of $357 million in June.
Why is capital returning?
The key catalyst was 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 foreigners. Additionally, starting April 1, 2026, authorities abolished the capital gains tax for foreign portfolio investors on the sale of government bonds and income derived from them.
Goldman Sachs analysts see this as a long-term trend. According to their assessment, global funds still have a "significant reserve" for returning to Indian equities due to underweight positions in portfolios. Despite concerns about downward revisions in earnings forecasts, growing certainty about the domestic recovery could prompt market participants to prematurely price in the upcoming upturn.
Goldman Sachs' forecast for the Nifty 50 index is 26,500 points by June 2027, roughly 10% above current levels. This indicates confidence in the resilience of the Indian economy and the effectiveness of the regulatory measures taken.
My comment as an analyst: The current inflow is not just a correction after sell-offs, but the beginning of a structural reversal. The abolition of the capital gains tax and the easing of RBI's currency policy create a strong foundation for attracting "long-term" money. However, investors should monitor the dynamics of the rupee and corporate earnings—these factors will determine whether India can sustain global capital interest in the medium term.