Page 36 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

The proposed reforms reflect a broader effort to improve governance, transparency and investor
protection in India's SME capital market. SME platforms currently operate with fewer disclosure
requirements than the mainboard, and their offerings are vetted by the stock exchanges rather than
undergoing the same approval process applicable to larger IPOs. Bringing stronger institutional
participation and higher operating requirements into the segment could improve price discovery and
provide an additional layer of due diligence before companies access public capital.

At the same time, expanding the scope of the SME platform could create new regulatory challenges. If
larger companies become eligible to choose between SME and mainboard listings, differences in
regulatory requirements could potentially encourage regulatory arbitrage. The proposed reforms will
therefore need to strike a balance between expanding access to capital for growing businesses and
ensuring that companies entering the public markets meet appropriate standards of governance, financial
performance and disclosure.

8. Foreign Portfolio investors turn buyers for the second consecutive month

Foreign portfolio investors (FPIs) turned net buyers in Indian equities for the second consecutive month
in August 2026, investing ?30,919 crore during the month. The inflow followed purchases of ?20,200
crore in July, marking a notable reversal after four consecutive months of heavy selling. The shift in foreign
investor sentiment was supported by improving corporate earnings, resilient domestic economic activity,
a relatively stable rupee and a more favourable global backdrop.

The August inflow represents a significant change from the selling pressure witnessed earlier in the year.
FPIs had withdrawn ?49,340 crore in June, ?32,963 crore in May, ?60,847 crore in April and ?1.17 lakh
crore in March. Despite the recent improvement, foreign investors remain substantial net sellers for the
year, with cumulative equity outflows of approximately ?2.23 lakh crore in 2026, already exceeding
the ?1.66 lakh crore withdrawn during the whole of 2025. The two consecutive months of positive flows
therefore provide an early indication of a possible change in the direction of foreign portfolio investment,
although a sustained reversal has yet to be established.

Improving corporate earnings emerged as one of the key factors supporting foreign investor sentiment.
Earnings during the June quarter showed signs of improvement, helping alleviate earlier concerns
regarding a broader earnings slowdown. At the same time, resilient domestic economic activity and
strengthening credit growth reinforced confidence in India's medium- to long-term growth prospects. The
relative stability of the rupee also improved the attractiveness of Indian assets for overseas investors by
reducing concerns over currency-related returns.

Global portfolio allocation dynamics also contributed to the shift. Easing geopolitical concerns improved
broader risk sentiment, while expectations of softer US interest rates supported flows towards emerging
markets. A rotation of global capital away from crowded AI and semiconductor trades in markets such as
South Korea and Taiwan also created room for incremental allocations towards Indian equities. Foreign
investor interest has additionally shown greater preference for mid- and small-cap stocks, where earnings
and growth momentum have remained comparatively stronger.

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