The call comes amid sustained foreign equity outflows, with foreign investors pulling out Rs 3,07,719 crore in 2026 so far, following outflows of Rs 1,66,286 crore in 2025. Foreign equity flows were nearly flat in 2024, with net inflows of just Rs 425 crore. The persistent selling has weighed on market sentiment, with five-year absolute returns for the Nifty and Sensex standing at 23 per cent and 18 per cent, respectively.
SBI Research said the outflows by FPIs in equity segment has been a whooping Rs 3.51 lakh crore from 2021-till September 2026, with 2023 being the only outlier in a somber environment. It said the outflows in 2026 and 2025 showed complete detachment from portfolio investment enablers.
The report, penned by Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, noted that a significant share of foreign equity flows had gone into primary market offerings rather than secondary market activity.
"The alarming situation definitely calls for suitable measures to anchor flows of Hot Money in the equity segment ($13 billion outflows in FY27) through both alignment with themes driving allocation as also sweeteners on taxation / cap gains front," the note said.
SBI Research said building substantially low taxation moats for such allocators, post a reasonable period say three years holding, can accentuate incremental flows as 'India Play' remained structurally attractive and blue chip names locally promise lucrative returns in a competitive market.
SBI Research said that if inflation remains sticky without a sharp economic downturn, persistent real-rate pressures and fiscal uncertainty could sustain an upward bias in long-term yields. This would put long-dated bonds under price pressure and create headwinds for equity valuations.
Meanwhile, SBI Research said greater clarity on withholding tax, which at present stands at present 5-20 per cent, or somewhat lower for IFSC listing, for ECBs is needed chiefly in view of granting assured benefits under DTAA and applying taxation according to general or specific clauses by authorities with enhanced clarity as a confidence measure.
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