Union Budget 2026 Enhances NRI Investment Framework to Stabilize Indian Stock Markets
Finance Minister Nirmala Sitharaman's Union Budget 2026 has introduced significant measures aimed at bolstering stability within India's stock market by substantially increasing investment limits for Non-Resident Indians (NRIs). This strategic move comes at a critical juncture when Foreign Institutional Investors (FIIs) have been withdrawing billions of dollars from Indian equities, creating volatility and pressure on the rupee.
Revised Investment Caps for Overseas Indians
During her budget speech, Sitharaman announced that the investment ceiling for Persons Resident Outside India (PROI) has been elevated to 10% of a company's paid-up capital, up from previous restrictions. This category encompasses Indian citizens living abroad for employment, education, or professional commitments, who are classified as non-residents under the Foreign Exchange Management Act.
Concurrently, the aggregate holding limit for all such overseas investors has been raised to 24% from the earlier 10% threshold. Under this revised regulatory framework, PROIs—who were previously confined to foreign direct investment or portfolio investment channels—will now be permitted to hold shares directly in listed Indian companies, streamlining their investment process.
Addressing Persistent FII Outflows
Tanvi Kanchan, Associate Director at Anand Rathi Share and Stock Brokers Limited, emphasizes the importance of this policy shift. "Indians residing abroad can now invest directly into Indian listed companies without navigating the cumbersome foreign portfolio investor system," she explains. "This straightforward reform could unlock billions in fresh capital at a crucial time. Foreign investors withdrew approximately Rs 19 billion from Indian equities in 2025, followed by another Rs 4 billion in January alone."
By simplifying access through the new Portfolio Investment Scheme, policymakers are strategically relying on the Indian diaspora to provide stable, long-term capital that institutional investors have increasingly withdrawn. Kanchan notes that this approach is well-founded, as diaspora investors typically maintain longer investment horizons, which helps steady markets and reduce volatility.
Broader Economic Benefits
The participation of overseas Indians is expected to yield multiple economic advantages:
- Strengthening the rupee through consistent capital inflows
- Improving market liquidity and lowering borrowing costs for Indian corporations
- Enhancing price discovery and market efficiency as individual investors take meaningful stakes
- Reducing speculative trading through more stable, long-term investment patterns
According to Bloomberg-compiled data, global investors pulled out more than $3 billion in January 2026, following withdrawals exceeding $18 billion throughout 2025. These sustained outflows have contributed to the rupee's depreciation of approximately 2.3% against the US dollar this year, making it Asia's weakest-performing currency.
Sectoral Impact and Implementation
Banking, financial services, capital goods, and technology sectors are anticipated to benefit most significantly from these reforms. The policy change directly addresses the need to build a diversified investor base anchored in long-term commitment rather than volatile global trading flows.
Aditya Mulki, Chief Executive Officer at Navi AMC Ltd., observes that "non-resident Indians generally invest with a longer time horizon and can provide stability when foreign institutions reduce their exposure." This perspective is echoed by Sonam Srivastava, founder of Wright Research Portfolio Management Services, who notes that PROI investors typically maintain enduring personal or economic connections to India, making their investments more stable and less speculative.
Preparations by Financial Institutions
In anticipation of increased NRI participation, wealth management firms in India have already begun adjusting their strategies. Over the past two years, several financial players have established offices in key international markets including Singapore, Dubai, and various European locations to better serve non-resident Indians, family offices, and high-net-worth clients.
Additionally, alternative investment funds have increasingly attracted capital from overseas Indians, particularly through platforms like Gujarat International Finance Tec-City (GIFT City). This preparatory infrastructure positions India to effectively channel diaspora investments into domestic markets.
The Union Budget 2026's focus on enhancing NRI investment frameworks represents a strategic effort to counterbalance foreign institutional investor withdrawals while tapping into the substantial wealth of Indian communities across the Middle East, North America, Europe, and Southeast Asia who seek reliable growth opportunities in their homeland.
