India Announces G‑Sec Market Reforms as Foreign Equity Investment Hits 10‑Year Low

The Indian Ministry of Finance, in the Union Budget 2026‑27, unveiled a package of reforms aimed at deepening the government securities (G‑Sec) market and attracting greater foreign portfolio investment (FPI) in both equities and debt. Individual Persons Resident Outside India (PROI) will now be permitted to invest in listed Indian companies through the Portfolio Investment Scheme, with the per‑person cap raised from 5% to 10% and the aggregate limit lifted from 10% to 24%. The Fully Accessible Route for FPIs has been expanded to include new 15‑, 30‑ and 40‑year G‑Sec issuances and sovereign green bonds, while restrictions on short‑term, concentration and security‑wise limits for FPI holdings in G‑secs have been removed. From 1 April 2026, interest income and capital gains earned by FPIs on G‑secs will be exempt from income tax.

Despite these measures, foreign portfolio investment in Indian equity markets fell to a ten‑year low, with net holdings of Rs 7.3 trillion as of 1 June 2026 – the lowest level since 2016. Foreign ownership in listed companies has slipped to about 15% from nearly 20% a decade ago, while domestic mutual funds now control roughly 20% of the market. FPIs hold Rs 3.75 lakh crore of G‑secs, representing 3.34% of total outstanding securities. In the same period, Taiwan and South Korea overtook India in global equity market size.