Editorial     

Published: September 30, 2026
Updated: September 30, 2026

Govt sleeping as China poaches FPIs

The Indian stock market is in bad shape in the wake of growing geopolitical tensions vitiating the global environment. In recent months, stock prices have suffered a severe setback with benchmark indices taking a haircut. The Sensex, the most popular market index based on the prices of 30 pivotal stocks quoted on the BSE, crashed from its recent high (December 2025) of 86,159.81 to 71,545.81, before closing at 72,480 points at the end of last month (September 2026). And the Nifty, the darling index of analysts based on 50 leading stocks quoted on the NSE, plummeted from its recent high of 26,373.20 (January 2026) to 22,182.55 (April 2026), before closing at 22,620 points at the end of September 2026.

The immediate, and major, factor responsible for the mayhem in the stock market is the heavy offloading of Indian stocks by foreign investors, particularly FIIs and FPIs, who have been unnerved by the growing geopolitical tensions that are affecting the economic, political and social life of almost all countries, whether they are associated with warring camps like the US, Israel, Iran, Russia and Ukraine, or not.

Foreign investors have been offloading Indian stocks to the detriment of India’s image as an investment-worthy destination. In fact, a large number of foreign investors are selling Indian stocks and investing in China – this, despite the fact that India is a mature and flourishing democracy while China is a tightly controlled communist nation.

And this is no routine selling. In 2026 so far, FPIs have pulled out massive capital exceeding Rs 2.45 lakh crore. And what has happened in the last one month of September has shocked not only Indian officials and analysts but economic observers around the globe. On a single day alone – September 29 – the sell-off was as high as Rs 9,980 crore, with the month’s cumulative withdrawal crossing Rs 20,000 crore.

While global macro pressures are a major factor, domestic valuations and short-sighted government policies have also contributed to foreign investors’ outflows. In the eyes of foreign investors, the Indian economy seems rudderless as the government of the day is more occupied with political fire-fighting than with economic consolidation.

While the Indian government has not taken any major steps to retain foreign investments, China has dangled several carrots to attract foreign investment, inducing FPIs to speed up offloading their Indian holdings and divert them to China. Valuation differences and aggressive economic stimuli are the two primary reasons FPIs are shifting capital from India to China, particularly in late 2026, by adopting a ‘buy low, sell high’ strategy. In the August rotation, the FPIs locked in profits from India’s expensive market to deploy funds in China’s historically cheap and newly stimulated economy. While Indian stocks are quoted around 22/23 PE, Chinese stocks are available at half the price – around 0/11 PE.

Interestingly, in September 2026, China announced a policy blitz, including cutting benchmark interest rates and injecting liquidity into the banking system, which sparked a sharp rally in indices like the Hang Seng and CSI 300. This created a FOMO (Fear of Missing Out) wave among FPI managers, who were underweight in China and rushed to offload their holdings in India. Little wonder, in September alone FPIs sold shares worth over Rs 46,000 crore. And in the first nine months of 2026, FPIs have pulled out a record Rs 3 lakh crore (over $ 3.5 billion) from India.

Market regulator SEBI is sleeping over the issue in the absence of any orders from New Delhi. There is an urgent need to remove long-term capital gains in order to stop FPIs from fleeing India. STT rates too are high and need to be slashed. The government should wake up immediately to stop FPIs fleeing India. Otherwise, a listless market with a downward inclination will stop the steady improvement in the country’s equity culture and discourage fresh capital formation.