NEOS Investment Management, LLC

So think of a company that builds a factory here or buys a big chunk of an Indian business and gets a say in how it's run.

Foreign portfolio investment, or FPI, is the short-term kind.

These are funds that buy small slices of listed shares and can sell them in seconds.

There are also two thresholds at which FDI and FPI tend to separate.

One, any stake in any Indian unlisted company counts as FDI.

Two, and more importantly, if a foreign investor owns 10% or more of a listed company, that's FDI and anything less is FPI.

This number is a global convention.

At that size, an investor is assumed to have a lasting interest in the company and real influence over it.

But along the way, we've made some good steps and some not so good sort of policy steps.

Getting FPI flows was fantastic.

And that's sort of, you know, in the 91 onwards.

And then, of course, the first registration of SEBI was created in 93.

The NSC was born in 1994.

But prior to that, we had the open outcry auction system, which was and it took six months to settle trades.

And if one person had not signed a share and there was a 10 lakh order by FPI or FII, you would have the entire failed trade for even 100 shares that were missing.

So all that got cleaned up.

There was a Reserve Bank of India, circular, and then there were issues around interpretation of that circular.

So the question was that, can I set up an entity in gift city of my own? And if that entity is doing outbound investment, which regime applies, FDI or FPI, which regime applies, it is widely now accepted that the FPI regime applies and therefore 50% of the net worth of an entity can be invested into Gift City from which outbound investments can be made.

That is one thing for which Gift City is widely used.

There are several...

The challenge which foreign investors are facing is really slightly different.

The issue there is that we have a depreciation in the rupee.

The computation of gains in the context of FPI is in rupees.

So you may end up paying taxes on a basis that you made gains in rupees, whereas the gain in dollar terms is nothing significant and you end up paying taxes out here.

But there are reasons to worry.

uh from rising interest rates especially if you are you know sitting in the us trying you know trying to balance the budget then definitely it's going to be a challenge but for us we are two degrees three degrees away from that the impact on cost of capital is something that we will need to

Is this something that is influencing the FPIs as well? Because we have been seeing constant outflows from Indian equity market, some 3 lakh crore in 26 and 2 lakh crore in FY25.

So what in your view can actually reverse and get the FPIs back? Are you in the camp that believes that some changes required to the long term capital gains tax and STT and so on?

you pay capital gains tax on capital gains so first let's fix the gains first let's give the reasons for investors to invest make money then we'll worry about what tax rate we'll apply okay so first what is the fundamental way that investors approach investing where do they see growth where do they see value as i said two years ago the outlook on growth was weak valuation was high not a reason to buy india i think valuations are moderated they're not cheap they're there but but there is a reason india has a valuation treatment to the world and earnings are accelerated.

I think this is an environment in which we should see partners allocating more to India.

The disinclination to acknowledge the challenge is a self-destructive cop-out when millions from the middle class, actually tens of millions from the middle class, have moved their savings into mutual funds or SIPs, systematic investment plans, and are celebrated by the government for doing so.

Unfortunately, it also amounts to them having given the fleeing foreign portfolio investors, FPIS, a golden handshake, an easy remunerative buyout.

And finally, and this is point number 12, a global situation f- for India not seen in decades.

Trump has narrowed India's strategic space in many areas.

If you want to understand how institutional capital actually operates behind the curtain, this data analysis from The Wire, which is pulling from money control in the Prime database, it's incredibly illuminating.

It tracks the behavior of foreign portfolio investors, or FPIs.

The data reveals a very distinct, almost aggressive bifurcation in how foreign capital views the Indian market.

FPIs are injecting massive liquidity into initial public offerings, purchasing 55,000 crore worth of IPO allocations.

But simultaneously, they are ruthlessly liquidating their positions in the secondary market, selling off three lakh crore rupees in already listed equities in 2026 alone.

Let me stop you there, because the natural instinct of a retail investor is to buy and hold.

If that cash is stuck in unpaid invoices, the business suffocates, even if it looks profitable on paper.

Spot on.

the headline numbers are massive and they initially seem to cancel each other out.

On one side of the ledger, foreign portfolio investors, or FPIs, have aggressively dumped a record-breaking 3 lakh crore worth of Indian secondary equity so far this year.

Right.

They are sprinting for the exits.