US, Europe dominate FPI flows as Singapore and Mauritius lose market share
Foreign portfolio investment in Indian equities has experienced a major structural shift over the past decade, with US-based FPIs increasing their share to 44% from 34% a decade ago, while Mauritius declined from 21% in 2015 to 4.1% in 2025. European centers have also gained market share consistently. This transformation was driven by India's 2017 tax treaty amendments and stricter SEBI disclosure requirements, which reduced advantages of routing investments through traditional tax-friendly jurisdictions.
*this image is generated using AI for illustrative purposes only.
Foreign portfolio investment in Indian equities has undergone a dramatic structural transformation over the past decade, with investors from the United States and Europe steadily gaining market share at the expense of traditional tax-friendly jurisdictions. This shift represents one of the most significant changes in India's foreign investment landscape, driven by evolving regulatory frameworks and tax policies.
Changing Investment Patterns
Data from ICICI Securities reveals the extent of this transformation in foreign portfolio investor domicile preferences. The numbers clearly demonstrate how investment routes have evolved over the past ten years.
| Region/Country | December 2024 Share | Share a Decade Ago | Change |
|---|---|---|---|
| US-based FPIs | 44% | 34% | +10 percentage points |
| Mauritius | 4.1% (2025) | 21% (2015) | -16.9 percentage points |
| European centres | Increased consistently | Lower base | Upward trend |
European financial centres, including Ireland and Norway, have also witnessed consistent increases in their share of India-focused assets, reflecting the broader shift toward established financial markets.
Regulatory Changes Drive Transformation
The decline of traditional routes stems from fundamental changes in India's tax and regulatory framework. Global funds historically routed investments through Mauritius and Singapore due to favorable tax treaties that granted these jurisdictions exclusive rights to capital gains taxation.
This advantage was significantly curtailed in 2017 when India amended its tax treaties. "India now has the right to tax sale of Indian shares by entities of Mauritius and Singapore," explained Amit Maheshwari, tax partner at AKM Global. The amendment marked a turning point in how foreign capital accessed Indian markets.
Current Tax Structure
Despite the changes, some benefits remain for Mauritius-routed investments, though with additional compliance requirements:
| Tax Component | Rate | Conditions |
|---|---|---|
| Dividends | 5% | Threshold 10% or more ownership |
| Interest | 7.5% | Standard rate |
| Principal Purpose Test | Applicable | Must adhere to treaty requirements |
The introduction of the principal purpose test means that if the primary objective of an investment was to obtain tax benefits, India can disregard treaty applications, potentially contributing to reduced investments through Mauritius.
Enhanced Disclosure Requirements
The Securities and Exchange Board of India (SEBI) has implemented stricter foreign portfolio investor regulations, mandating complete disclosure of beneficial ownership for foreign funds. These measures have led to greater scrutiny and reshaped the foreign capital composition in Indian equities.
Market Performance Context
The structural changes in FPI domicile preferences occurred against a challenging market backdrop. Foreign investors withdrew a record ₹18.8 billion from Indian equities in 2025, representing the sharpest withdrawal across Asia. This contrasted sharply with China, which attracted inflows exceeding ₹96 billion during the same period.
According to Rajat Rajgarhia, Managing Director of institutional equities at Motilal Oswal Financial Services, the outflows were attributed to rich valuations and slowing growth. "The premium valuation that foreign investors were paying for India was due to strong growth; however, in 2025, India's earnings growth was in single digits—much lower than the long-term growth," he noted.
The transformation in FPI domicile patterns reflects India's evolving position in global markets, with regulatory changes successfully encouraging more transparent investment structures while maintaining the country's attractiveness to international capital from established financial centers.
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