US, Europe dominate FPI flows, Singapore & Mauritius lose out

Mumbai: Overseas capital in Indian equities has undergone a structural shift in the past decade, with foreign portfolio investors domiciled in the US and Europe steadily displacing vehicles from traditional tax-friendly jurisdictions. Data from ICICI Securities showed US-based FPIs accounted for 44% of FPI equity assets in India as of December, as against 34% a decade ago. European centres, such as Ireland and Norway, have also seen a consistent increase in their share of India-focused assets. The share of foreign equity assets from Mauritius, which was a dominant route through which foreign capital flowed into India, has declined to 4.1% in 2025 from 21% in 2015.

The shift has been driven by tighter tax norms and stricter regulatory disclosures, which have reduced the advantage of routing flows through tax-friendly jurisdictions such as Mauritius and Singapore.

Global funds routed money through Mauritius because these countries had tax treaties giving these countries exclusive right to capital gains taxation. "This changed in 2017 when India amended the tax treaty where it now has the right to tax sale of Indian shares by entities of Mauritius and Singapore," said Amit Maheshwari, tax partner, AKM Global. "Mauritius remains favorable as dividends are to be taxed at 5% (threshold 10% or more ownership) and interest at 7.5%, however, one has to adhere to the principal purpose test introduced in the tax treaties (in India Mauritius DTAA, not ratified)."

This means that if the principal purpose of the investment was to take a tax benefit then India can disregard the treaty from its application which might have contributed to a dip in investments routed through Mauritius, said Maheshwari.

The Sebi tightened foreign portfolio investor rules, requiring full disclosure of beneficial ownership of foreign funds that led to greater scrutiny. These measures reshaped the foreign capital mix in Indian equities.

Foreign investors pulled a record $18.8 billion from Indian equities in 2025, the sharpest withdrawal across Asia, even as China defied the trend with inflows exceeding $96 billion. Brokers said rich valuations and slowing growth contributed to the flows. "The premium valuation that foreign investors were paying for India was due to the strong growth; however, in 2025, India's earnings growth was in single digits-much lower than the long-term growth," said Rajat Rajgarhia, MD, institutional equities, Motilal Oswal Financial Services.