India is cheaper. Why are foreign investors still selling?

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MUMBAI: India has become cheaper, but foreign investors are still selling.
That apparent contradiction captures the problem facing Indian equities. Foreign portfolio investors (FPIs) sold ₹3.16 trillion worth of shares through stock exchanges in the first nine months of 2026, while investing ₹55,524 crore through the primary market, according to data from the National Securities Depository Ltd (NSDL).
The buying offset nearly 18% of their exchange-based selling, leaving net equity outflows of ₹2.60 trillion through September. The split suggests foreign investors have not abandoned India—but are becoming more selective about where they put money.
The divergence was particularly stark in September. FPIs sold ₹45,537 crore through stock exchanges but invested ₹9,676 crore in the primary market, leaving net equity outflows of ₹35,861 crore.
“The valuation correction has made India considerably more investable, but lower multiples alone are unlikely to bring back sustained foreign buying,” said Vishad Turakhia, chief executive officer of Equirus Securities.
For foreign investors, the decision combines valuation, earnings momentum, currency movements and the returns available elsewhere, he said.
Cheaper India, better alternatives
The selling has continued despite a significant valuation correction. The Nifty 50 traded at 20.5 times trailing 12-month earnings on 30 September, down from 25 times at the September 2024 market peak.
Yet the index fell 18.4% in dollar terms during January-September, underperforming all six global peers, according to a Mint analysis of Bloomberg data. It now trades about 10.5% below its five-year median of 22.9 times and 11.2% below its 10-year median of 23.1 times.
Somnath Mukherjee, chief investment officer at ASK Private Wealth, said India remained unfavourably positioned against most major markets when near-term earnings growth was considered alongside valuations.
The opportunity cost is stark. South Korea’s Kospi gained 72.4% in dollar terms in the first nine months of 2026, while Taiwan’s Taiex rose 64.5% and Japan’s Nikkei 225 advanced 31.8%. The US S&P 500 gained 11%, while the UK’s FTSE 100 returned 5.3%. Hong Kong’s Hang Seng declined 4.7%, but still outperformed the Nifty substantially.
Gaurav Didwania, partner and fund manager at Qode Advisors, said lower Indian valuations looked less compelling against competing opportunities. Rupee weakness, elevated crude prices and higher US yields further complicated the investment case, he said.
Turakhia pointed to differences in market composition. Emerging markets like Taiwan and South Korea offer greater direct exposure to the AI and semiconductor investment cycle, while India’s appeal rests more on domestic growth, consumption, financials and manufacturing, he said.
Strong market returns, however, have not always coincided with foreign inflows. Taiwan recorded net foreign equity withdrawals of $37 billion through 30 September despite its rally, Bloomberg data shows. Indonesia, Vietnam and Malaysia also saw outflows of $4.7 billion, $3.6 billion and $1.6 billion, respectively.
“A handful of semiconductor stocks have led the rally in South Korea and Taiwan despite foreign outflows. India is missing that ‘wow factor’, whether in valuations or exceptional growth, which helps explain its continued selling pressure and underperformance,” said Kranthi Bathini, director of research at WealthMills Securities.
Selective buying
Primary-market buying suggests foreign investors have not abandoned Indian equities altogether. FPIs were net buyers in the primary market in each month between January and September, while selling through exchanges in six of those nine months.
Primary-market buying also gathered pace in the third quarter, reaching ₹35,409 crore in July-September and accounting for nearly 64% of the nine-month total, according to NSDL data.
Secondary-market flows were more volatile. March recorded the heaviest selling, at ₹1.22 trillion. Purchases in July and August offered a reprieve, but September brought renewed selling of ₹45,537 crore.
Turakhia said foreign participation in the primary market alongside secondary-market selling suggested portfolio selection and a search for relative value rather than a blanket negative view of India. The NSDL category is broader than IPO investment alone, but the divergence supports the distinction between selective buying and a wider withdrawal.
Cheaper enough?
India’s valuation has become more competitive since the September 2024 market peak, but it remains expensive against some markets on forward earnings.
At 20.5 times trailing earnings, the Nifty trades at a discount of about 22% to the S&P 500’s 26.3 times and 23% to Taiwan’s Taiex at 26.5 times. It is also marginally below Japan’s Nikkei 225, at 20.8 times. In September 2024, the Nifty traded at 25 times, above the Nikkei’s 23.2 times and the Taiex’s 22.9 times, and only slightly below the S&P 500’s 26.2 times.
On one-year forward earnings, the Nifty trades at 15.1 times, almost matching Taiwan’s Taiex at 15.2 times. It remains below the S&P 500’s 16.8 times and the Nikkei’s 20.3 times, but above the FTSE 100’s 11.7 times, the Hang Seng’s 9.5 times and the Kospi’s 4.7 times.
Didwania said India’s long-term growth prospects supported a premium over some peers, but that premium needed to be earned through delivery. Its discount to AI-linked markets reflected their stronger earnings visibility.
For lower valuations to translate into sustained foreign buying, investors will need more confidence in earnings and dollar returns. Turakhia and Didwania pointed to earnings upgrades, greater rupee stability and relief from elevated crude prices and US yields as conditions that could strengthen India’s investment case.

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