FPIs Return to Indian Equities as RBI Closes FCNR Deposit Window

Foreign Portfolio Investors have returned to the Indian market, injecting ₹16,621 crore in the first half of August 2026. This follows a ₹20,200 crore inflow in July, signaling a tentative turnaround after four months of heavy outflows. Despite this optimism, the calendar year remains net negative with outflows of ₹2.4 lakh crore. Investors are showing increased interest in automotive, healthcare, and consumer durable sectors, supported by improving valuations and expectations of easing US interest rates.

The Indian mutual fund industry hit a historic high in July 2026, with AUM crossing the ₹85 lakh crore mark. This represents a substantial growth of ₹9.65 lakh crore over the past 12 months. Equity-oriented schemes have sustained a streak of positive inflows for 65 months, with small-cap and flexi-cap funds leading the retail investor appetite. This long-term trend underscores a structural shift in domestic savings toward equity markets, providing a vital counterweight to international volatility.

The Reserve Bank of India has prematurely closed its special FCNR(B) deposit facility as of August 31, 2026, after successfully mobilizing $52.3 billion to stabilize the rupee. While the forex situation improves, domestic sentiment was dampened this week by uncertainty regarding leadership transitions at the Tata Group, which triggered a 2% decline in the group's market capitalization. Market participants remain vigilant as geopolitical tensions in the Middle East keep crude oil prices elevated, potentially impacting India’s trade balance and domestic inflation.