Synopsis: Nithin Kamath says foreign investors are avoiding India due to oil-related geopolitical risks, limited AI opportunities, expensive valuations, rupee weakness, and tax policies that reduce the market’s attractiveness for global capital.
In March, foreign institutional investors sold domestic equities worth ₹1.14 lakh crore (around $12.3 billion), marking the steepest monthly outflow on record. The sell-off was driven by rising tensions in West Asia, a weakening rupee and fears that higher crude oil prices could hurt India’s economic growth.
Foreign investor sentiment towards India has weakened sharply in recent months, even as domestic markets continue to remain relatively resilient. According to Nithin Kamath, global funds are becoming more selective and are increasingly looking beyond India for better opportunities.
What’s the news
Geopolitical Exposure and Oil Risks
Nithin Kamath highlighted that global investors are increasingly cautious due to India’s perceived vulnerability to geopolitical instability. Specifically, India is seen as highly exposed to potential oil shocks.
Given that the country imports a vast majority of its energy needs, any escalation in global conflicts particularly those involving major oil-producing regions, creates a risk premium that makes foreign capital nervous.
Lack of AI-Linked Opportunities
While much of the recent global market rally has been fueled by the Artificial Intelligence boom, Kamath noted that India lacks significant real AI plays. Unlike markets in Japan, Taiwan, and Korea, which offer direct exposure to semiconductor manufacturing and AI hardware, India’s market is perceived to have fewer companies positioned at the center of this technological shift. Consequently, global funds are rotating money toward regions with clearer AI-driven growth stories.
Rich Valuations and Rupee Pressure
A major deterrent for Foreign Portfolio Investors (FPIs) is the current state of Indian market valuations, which are described as rich or expensive. When high entry prices are combined with a weakening Rupee, the net returns for foreign investors are significantly eroded.
Kamath observed that many investors who were sitting on substantial gains have chosen to take money off the table, moving their capital into cheaper or more stable alternatives in Europe and East Asia.
Taxation and Regulatory Friction
Kamath also pointed to domestic policy as a factor in the pullback. He suggested that the current structure of Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG), along with recent increases in the Securities Transaction Tax (STT), has made the Indian market less competitive. He categorised fixing these tax frictions as low-hanging fruit that the government could address to help attract foreign institutional investors back to the country.
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