Veteran investor Ajit Dayal, founder of Quantum Advisors, has issued a stark warning: foreign portfolio investors (FPIs) are increasingly frustrated and losing trust in India. Writing for Financial Express, Dayal, with over three decades of experience engaging with global capital, stated he has never witnessed such widespread dismay among FPIs concerning India's investment climate.
Dayal argues that India's biggest challenge is no longer merely global market conditions, but a domestic policy environment that actively discourages foreign investment. He coined the term "Arrogant India" to describe a national mindset that assumes India's economic potential makes it indispensable to global investors, despite policies that punish foreign capital.
Key Concerns for Foreign Investors
According to Dayal, several factors are contributing to this erosion of foreign investor trust in India:
- Capital Gains Taxes: He criticized the taxation of foreign investments, particularly those from international pension funds and endowments which often enjoy tax-exempt status in their home countries. Indian capital gains taxes represent an additional, often unrecoverable, cost.
- Rupee Depreciation: Policies aimed at boosting exports by forcibly depreciating the Indian Rupee are seen as a tax on the total capital invested by FPIs and foreign direct investors (FDIs), negatively impacting their required rate of return.
- Governance Concerns: Dayal warned that issues of governance and regulatory uncertainty are increasingly influencing investment decisions. While India historically offered stronger investor protections than some peers, concerns about inconsistent rules and corporate conduct are growing.
The veteran investor also highlighted difficulties arising from retrospective tax demands and the tax treatment of internal portfolio reallocations, which can trigger taxable events.
The "Arrogant India" Stance
Dayal suggests that Indian policymakers have become overly confident in the country's appeal to international capital. Across the political spectrum, he observes a "disrespect for consistency of rules, the tampering of laws and the arrogance that breeds from an assumption that India has a TINA (There Is No Alternative) factor."
He contrasted the government's call to welcome the world with policies that, in practice, "punish the FPIs who wish to participate – and help – in the growth of the Indian economy." Beyond financial regulations, Dayal pointed to bureaucratic hurdles and corruption encountered by Indian-origin executives handling personal matters in India, transforming the "ease of doing business" narrative into "grease of doing business."
Impact and Call to Action
Dayal's assessment comes amidst significant FPI outflows. Foreign investors withdrew ₹48,056 crore from Indian equities in October through October 25, 2026, bringing net outflows for 2026 to ₹3.08 lakh crore. He emphasized that these redemptions are not due to the global artificial intelligence (AI) investment boom, but rather the "Arrogant India" syndrome.
He urged India to adopt a more humble and welcoming approach, respecting FPIs as guests. Dayal stressed that investors who make an effort to study and invest in India deserve a fair "Return on Effort" that is not diminished by capital gains taxes or an outdated mindset of weakening the rupee. Instead of seeing annual inflows of US$100 billion, India is experiencing US$25 billion in redemptions, a trend Dayal attributes to a policy environment that needs urgent reform to attract, rather than deter, capital flows.