BFSI Insight Summit 2026: 'Lower taxes may bring back foreign investors'

At the BFSI Insight Summit 2026, foreign brokerage heads said stronger corporate earnings, lower crude oil prices and a renewed growth advantage are key to reviving FPI inflows

Amid a challenging global macroeconomic landscape, a surge in US Treasury yields and the global gravitation towards artificial intelligence (AI), foreign investors would wait for crude oil prices to cool down and corporate earnings growth to gather pace before going overweight on Indian markets, said the heads of four leading foreign brokerages in the country at a panel discussion titled ‘Analysing India’s equity market through the foreign lens’ at the Business Standard BFSI Insight Summit in Mumbai on Wednesday.

 

Foreign investors would also want a return of India’s growth advantage over other emerging markets (EMs), and lower taxation before returning to Indian equities, they said.

 

 

“The global macroeconomic backdrop remains challenging for India and the equity valuations have moderated in recent months, but they are not screaming cheap either,” said Gautam Chhaochharia, head of global markets, India, at UBS. All these factors make equity investment in India tough for foreign investors currently.

 

According to Sandeep Bhatia, managing director (MD) and head of equity India at Macquarie, India remains one of the most important and vibrant EMs despite two years of net outflows. “Once this entire AI (artificial intelligence) and tech driven euphoria in the Western markets sees a correction there will be a reevaluation of the Indian equity market and inflows will resume,” he said.

 

“Markets tend to be emotional in the short term, but are generally mathematically consistent,” Sanjay Mookim, head of India equity research at JPMorgan said, arguing that capital flows largely follow differences in growth and currency performance. Developed markets, particularly the US and Europe, are seeing strong growth and earnings upgrades, while India’s relative growth advantage has narrowed. Higher oil prices have also worsened perceptions of India’s macroeconomic risks.

 

Oil and US yields pose major hurdles

Oil is the more immediate concern for India, while US Treasury yields remain a key benchmark for global asset allocation, Chhaochharia said. Higher US yields raise the return investors expect from riskier assets. Even if Indian firms deliver earnings growth, they must generate sufficiently strong dollar returns to compete with safer instruments.

 

For tactical investors, crude prices are a more direct driver of sentiment and flows, he said. India’s earlier earnings growth of around 10-14 per cent had looked compelling against other markets, but investors now need a stronger case to justify allocations.

 

Mookim said every $10 increase in crude prices adds about $15 billion to India’s annual current account deficit (CAD). A sustained move from an average of $75 a barrel to $125 a barrel would, therefore, create a substantial external burden. Higher energy costs can also squeeze household spending and corporate margins, weighing on domestic growth.

 

The pressure can become self-reinforcing: Concerns about CAD and the rupee can prompt foreign outflows, while currency hedging and short positions add to market stress. Mookim said funds raised by the Reserve Bank of India (RBI) between April and August had provided breathing room, but a prolonged period of expensive oil would ultimately require lower growth.

 

Venugopal Garre, MD and head of India research at Bernstein flagged the issue of taxes on incentivising foreign capital. “Long-term capital gains tax is a pretty contentious and emotional issue for foreign funds investing into emerging markets globally. They see it as… how can India have LTCG on equities,” said Mr Garre.

 

According to him, India is still a capital starved country and it needs to make it easier and cheaper to invest in the country by easing friction and reducing taxes. However, tax cuts alone may not be a sufficient factor and India will also need to deliver a meaningful growth differential for sustained capital inflows.

 

The panellists distinguished corporate performance from the macroeconomic backdrop. Mookim said June- and September-quarter results had been reasonably good and bottom-up analysis did not point to a broad deterioration in company performance.

 

Chhaochharia said double-digit earnings growth for Indian companies should remain achievable over the longer term, given nominal GDP growth of around 10 per cent. That stronger trajectory would be needed to deliver compelling returns and attract foreign capital at scale.

 

Garre said foreign investors increasingly question whether India’s large cap companies are positioned for the next wave of growth. Indian analysts have highlighted rising per-capita income, consumer spending, organised retail, ecommerce, electric vehicles (EVs) and infrastructure.

 

India may be at an earlier stage of development in several sectors, Garre said, but that is not enough to secure investment. Firms must show how they will build future-facing businesses rather than wait for government incentives. He questioned why cash-rich Indian automakers should need policy support to invest in newer product lines such as EV technologies or renewable energy.