Why FPI interest in India ‘has pretty much died out’: Nithin Kamath points to valuations, taxes and global alternatives

Foreign investor appetite for Indian equities may be cooling sharply, if insights shared by Nithin Kamath are anything to go by. In a recent social media post, the Zerodha co-founder said feedback from a stock market insider suggests that global investors are increasingly turning cautious on India, citing a mix of macro, valuation, and policy concerns.

According to Kamath, India is currently viewed as geopolitically vulnerable—particularly to potential oil shocks—while the absence of compelling artificial intelligence-led investment opportunities has further dampened its appeal. Elevated valuations and concerns around the rupee have also added to investor hesitation.

He noted that many foreign investors who were sitting on gains have already booked profits and are reallocating capital to other markets such as Japan, Taiwan, South Korea, and parts of Europe, where relative valuations and growth narratives appear more attractive.

Policy-related factors are also playing a role. Kamath highlighted that India’s capital gains tax framework—especially the structure of long-term and short-term capital gains (LTCG/STCG)—along with the recent increase in Securities Transaction Tax (STT), has made the market less competitive versus global peers that are currently attracting stronger inflows.

With foreign portfolio investment (FPI) flows turning volatile, Kamath suggested that rationalising these tax structures could be a “low-hanging fruit” to improve India’s attractiveness and bring global investors back into the fold.

“Asked someone from the industry whether foreign investors are still interested in allocating to India. The TLDR: Interest has pretty much died out. India is seen as geopolitically exposed, especially to an oil shock. There are no real AI plays. Valuations are rich. And the rupee situation doesn’t help. On top of that, investors who were sitting on gains have taken money off the table and are now looking at markets like Japan, Taiwan, Korea, Europe etc instead,” the tweet said.”He also pointed out that our LTCG/STCG structure and the increase in STT have made India less attractive compared to other markets that are seeing inflows. If we need to attract FPIs back, and we do, fixing this feels like pretty low-hanging fruit,” Kamath added.Nifty is down 9% this year, as FIIs continue to leave India. They have offloaded equities worth Rs 1,77,271 crore so far this year. In just six sessions this month, they have sold Rs 46,149 crore worth of stocks. Domestic markets ended with cuts today, ending their five-session gaining streak. They fell amid significant selling pressure in financial stocks along with auto and FMCG counters. Nifty plunged 222.25 points or 0.93% to finish at 23,775.10. Meanwhile, Sensex declined 947.22 points or 1.22% to settle at 76,615.68.

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