Easier PMS rules for NRIs: Expert explains what it means for equity flows

Budget 2026 has eased PMS and ownership rules for NRIs. Ametra PMS CIO Karan Aggarwal explains how overseas investors may respond

Union Budget 2026 has opened a fresh door for non-resident investors by easing portfolio management and ownership rules for foreign individuals and NRIs. The changes include allowing foreign individuals to invest directly through the Portfolio Investment Scheme (PIS), merging NRIs and other non-resident individuals into a single category, and raising individual and aggregate ownership limits in listed companies.

 

The government expects these steps to broaden foreign participation beyond institutional routes and bring in longer-term capital. But how will overseas investors actually respond, and will the changes alter NRI behaviour during volatile market phases?

 

Business Standard spoke to Karan Aggarwal, co-founder and CIO of Ametra PMS, a Sebi-registered portfolio manager, on whether easier PMS rules can unlock steady NRI inflows, how overseas investors view Indian equities across regions, and the mistakes NRIs often make during market corrections. Edited excerpts:

   

Will easier PMS rules translate into steady or long-term NRI investments in India?

 

New rules are unlocking foreign capital which was hitherto unavailable to Indian markets. The removal of differentiation between individual NRI investors and foreign individual investors is a structural shift. Foreign individuals are now treated at par with NRIs and can invest directly in Indian markets through the PIS route. This should improve liquidity and inflows, along with better price discovery and market efficiency.

 

Non-resident individual investors, including NRIs, are now clubbed into a single PROI category for ownership restrictions. The single-investor cap in a company has been raised from 5 per cent to 10 per cent, and the aggregate PROI ownership limit from 10 per cent to 25 per cent. This allows foreign individual investors to build meaningful positions in Indian companies without relying on complex institutional routes such as FII or FDI. The impact should be positive for equities, especially segments outside the top 500 market capitalisation.

 

How does NRI investing behaviour differ across regions during volatile phases?

 

Investor behaviour is governed by the local environment. Gulf-based NRIs tend to focus on real estate-linked investments that generate post-tax regular income, covering inflation and currency depreciation. This mirrors investment preferences across GCC countries. A large part of their Indian exposure is structured through REITs and AIFs, which are relatively insulated from market volatility.

 

NRIs based in South-East Asia, the US and Europe are more growth-oriented. Their decisions are driven by India’s relative positioning against other global markets and by currency movements versus their local currencies. While volatility over the past 12 months has been far lower than in 2008 or 2020, sustained underperformance can affect confidence. India delivered around 2 per cent returns in dollar terms, compared with about 14 per cent for the S&P 500 and nearly 30 per cent for the MSCI Emerging Markets Index. If this continues over the next 12 to 24 months, sentiment could weaken.

 

Many NRIs have exposure to China, which delivered zero returns between 1994 and 2024. That experience reinforces the idea that strong economic growth does not automatically translate into equity returns if earnings growth and valuations are misaligned.

 

What prompts overseas investors to exit Indian equities during downturns?

 

Global investors have direct access to US markets, and US equities have been the top-performing asset class over the last 15 years. The S&P 500 has delivered nearly 450 per cent returns, compared with about 90 per cent for India in dollar terms. This explains why relative under-allocation to India looks rational and why foreign investor outflows have occurred in 13 of the last 15 years.

 

Currency depreciation compounds the issue. India has run persistent trade deficits, making depreciation a structural feature. Over the past 15 years, currency depreciation has eroded nearly 50 per cent of returns for NRIs.

 

Even from a diversification standpoint, markets such as Europe, China, Japan, South Korea and Taiwan offer better valuation comfort. Indian equities are among the costliest globally outside the US. The AI-led rally over the past year has also shifted attention towards East Asian markets that are integral to the AI value chain, while India, as a consumption and services-driven market, may come into focus after the capex cycle matures.

 

Are NRIs investing larger amounts after Budget 2026 changes?

 

It is too early to draw conclusions on near-term behaviour, but the changes are constructive and can lead to a sharp rise in foreign inflows. Since these inflows are likely to come from individual investors, they should translate into long-term capital rather than short-term flows.

 

Raising the individual ownership ceiling from 5 per cent to 10 per cent and the aggregate PROI limit to 25 per cent allows foreign investors to take larger positions in high-conviction ideas without using institutional structures. This should support equity segments beyond the top 500 companies.

 

What mistakes do NRIs make during market corrections?

 

NRIs need a planned approach with clarity on their long-term location and spending needs.

 

• If retirement and future expenses are planned overseas, the bulk of investments should remain in the home market, with Indian equities used primarily for diversification. In such cases, returns from India must be evaluated against global options available.

 

• If retirement is planned in India, a larger allocation to Indian assets makes sense, and currency movements or relative underperformance become less relevant.

 

Without proper planning, NRIs risk ending up with sub-optimal asset allocation and reacting emotionally during market corrections.