New Delhi: Foreign Portfolio Investors (FPI) have withdrawn Rs 3.08 lakh from Indian markets in 2026, says a report in the Times of India. In all of 2025, the withdrawal was at Rs 1.66 lakh crore. While the international situation, especially higher crude prices as the war in West Asia continues, sparked outflows, domestic indicators such as high inflation are contributing to the exit as well.India’s retail inflation may have increased to a 23-month high of 5.6% in September, further rising from 4.8% the previous month, a poll of 19 economists conducted by Mint revealed.The bigger picture on the world stage impacting Indian competitiveness in attracting and keeping foreign investments rooted for the long term includes higher interest rates in the United States.This aggressive exodus is heavily driven by a mix of escalating global tensions, rising crude oil prices, high US treasury yields and structural and governance concerns within the domestic market. The exit of foreign investors, increasing inflation rate and doubts over actual GDP growth rates are a politically sensitive issue in India.The latest pre-budget reports suggest the Indian government will take measures to make the Indian market more attractive as a stable destination for foreign investors. As per a report in the Indian Express citing sources in the finance ministry, the government is considering lowering the long-term capital gains tax rate from the existing 12.5% as well as allowing foreign investors to pay this tax in dollar terms.The report by Aanchal Magazine and Anil Sasi says the government has acknowledged these steps may be required as a result of “zero returns or losses in stock markets over the last two years” which came atop poor wage growth.A sample of Indian companies studied by the Business Standard in late August showed that they were growing in terms of revenue without proportionately increasing their wage bills. While the profitability of the corporate sector grew, it found, the gap between revenue growth and wage-bill growth expanded rapidly.The report found, based on 3,057 non-finance companies whose data was sourced from the Centre for Monitoring Indian Economy, that a combination of factors was behind the situation, from the new labour codes, restrained hiring and compensation and growing adoption of AI tools.All of these were allowing companies to keep employee costs low even as sales rise quickly, said the publication.Also read: Indian Govt Bonds Record Worst Losing Streak in Last Three DecadesThe Times of India, on the other hand, cited experts who said persistently high crude oil prices and concerns over earnings in the corporate sector had a role to play. Other experts also said that domestic investors made up the bulk of India’s stock market investors. Further, another expert said that the foreign investors remained keen on Indian IPOs, which could mean their money was rotating rather than losing interest.A Money Control report based on data from varied sources including Prime Database and Sebi had said earlier this month that buying decisions of FPIs are being driven by new issue pricing and access to companies and segments.While FPIs had already offloaded Rs 3 lakh crore in 2026 (by late September), says the report, they purchased Rs 55,000 crore into IPOs. The publication said the trend had persisted for three consecutive years.Further, it was seen in September that foreign investors were withdrawing capital from Indian government bonds and moving to developed countries for safer, comparable returns as global interest rates rose. The narrowed yield differential – the smaller gap between the interest rates offered in India and developed nations – has reduced the incentive for emerging market investment.The Times of India report also says that the FPIs withdrew Rs $8,056 crore from Indian equities in October alone, while selling eased in the week ended October 23, which saw two days of buying.“The latest withdrawals follow net outflows of Rs 35,861 crore in September,” said the publication.