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Summary: Foreign investors have sold more Indian equities in 2026 than in all of 2025. The rupee hit a record low. The gold import bill hit a record high. On June 5, the government and RBI moved on all three problems at once. And the measures are worth understanding before markets price them in.
The central government and the Reserve Bank of India announced a coordinated set of measures on June 5, 2026 to attract foreign capital into Indian debt and equity markets, even as separate restrictions on gold investments took effect the same week. The moves come amid sustained foreign selling of equities, a record-low rupee, and a record gold import bill, all of which have pressured the country's external accounts.
Foreign sales are at a record pace
Foreign institutional investors have been net sellers of Indian equities through 2026. According to NSDL data, FIIs have sold a net Rs 252,499 crore in the secondary market so far this year, already exceeding the roughly Rs 240,179 crore sold across all of 2025. That works out to more than Rs 400 crore in sales per trading hour, compared with about Rs 161 crore per hour in 2025. Including primary markets, net FII flows for 2026 stand at minus Rs 237,027 crore.
The selling has been attributed to elevated crude prices, global reallocation toward technology and AI plays in the US, Taiwan and South Korea, and a cut in India's weight in some global indices. Historically, these flows are cyclical: FIIs sold a net Rs 127,166 crore in 2022, then bought a net Rs 173,543 crore in 2023.
The rupee and the bond measures
Foreign exits convert rupees into dollars, and the currency fell to a record low near 97 against the dollar in May. At its June meeting, the RBI's Monetary Policy Committee held the repo rate at 5.25 per cent for the third straight meeting, choosing to defend the rupee through capital-flow measures rather than rate changes.
Through the Income-tax (Amendment) Ordinance, 2026, promulgated on June 5 because Parliament was not in session, the government exempted foreign portfolio investors from tax on both interest income and capital gains from government securities, effective 1 April 2026. Interest was previously set at 20 per cent, long-term gains at 12.5 per cent, and short-term gains up to 30 per cent. The exemption was also extended to the Bank for International Settlements, which holds no Indian G-Secs yet, making that provision enabling rather than immediate.
The RBI expanded the Fully Accessible Route to include all new 15-, 30- and 40-year issuances and eligible Sovereign Green Bonds. Under the General Route, the short-term, concentration- and security-wise limits for FPIs were removed, while overall caps of 6 per cent on central and 2 per cent on state securities were retained. Notably, foreign investors have used only a sliver of their existing access: FPIs hold around Rs 3.24 trillion in FAR securities, just 6.8 per cent of the available limit, with a further Rs 4.06 trillion in general-route headroom. The constraint has been demand, not regulatory ceilings, which is what the tax break targets.
Separately, individual Persons Resident Outside India may now invest in listed equities under the Portfolio Investment Scheme, which was previously open only to NRIs and OCIs, with the per-company limit raised to 10 per cent and the aggregate to 24 per cent. A concessional forex swap window for PSU borrowings and RBI support for FCNR(B) hedging costs, both to 30 September, completed the package.
Markets responded positively. The 10-year yield fell 3 basis points to 6.96 per cent, PNB Gilts rose over 6 per cent, and FPIs bought more than Rs 3,000 crore of FAR securities after the announcement. The rupee firmed, though broader indices ended slightly lower ahead of GDP data.
The gold dimension
The same week, three large fund houses moved to slow a different dollar drain. India imports almost all the gold it consumes and pays in dollars. In 2025-26, the gold import bill hit a record $72 billion, up 24 per cent from $58 billion, driven by higher prices even as volumes fell. Gold is India's second-largest import after crude, accounting for over 5 per cent of the total bill. The metal rose more than 70 per cent in 2025, crossing Rs 1.3 lakh per 10 grams, pulling investors into gold ETFs.
On May 10, the Prime Minister urged households to avoid buying gold jewellery for a year, citing the current account deficit and weak rupee; the next day, the government doubled the basic customs duty on gold from 5 to 10 per cent and raised the agriculture cess.
Then, on June 4 and 5, HDFC, ICICI Prudential and Nippon India each barred direct subscriptions above Rs 25 crore into their gold ETFs, with Kotak and Aditya Birla Sun Life reported as likely to follow. The cap limits the creation of new ETF units, the route through which funds buy fresh physical gold. SIPs, redemptions and exchange trading are untouched. For most retail investors, the impact is limited, as the threshold targets large direct investors. The risk worth noting is that if exchange demand outpaces the frozen supply of units, an ETF's price can drift to a premium over NAV. Multi-asset funds, which hold gold via ETFs, may also trim those allocations if the curbs persist.
Also read: RBI holds repo rate at 5.25%; raises inflation forecast
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