Indian Founders Slash Holdings to All-Time Low as Funds Stay Bullish

Indian founders are reducing their stakes in domestic companies to record lows as institutional investors remain optimistic about the country's long-term potential. This trend reflects a shift in ownership patterns and growing confidence among foreign and institutional capital. Meanwhile, recent policy changes and trade agreements are reshaping the investment landscape.

New rules announced in the 2026 Union Budget now allow non-resident Indians (NRIs) to directly invest up to 10% in Indian equities, expanding their access to domestic markets. The change is expected to encourage greater foreign portfolio participation, particularly in large-cap and liquid sectors according to financial reports.

In a separate development, India and the U.S. announced a trade deal that slashed tariffs on Indian exports, triggering a sharp 5% rise in the Nifty 50 benchmark index. The agreement reduced U.S. tariffs on Indian goods from 25% to 18%, while India pledged to eliminate non-tariff barriers and stop purchasing Russian oil as reported by CNBC. Analysts view this as a significant boost to export-driven sectors and overall economic sentiment.

Why Did Founder Holdings Decline?

Indian founders have been offloading their stakes amid growing institutional ownership and a push for liquidity. This trend is seen as part of broader corporate governance reforms, with founders increasingly prioritizing capital returns over direct control. At the same time, institutional investors—both domestic and global—have been increasing their exposure to Indian equities.

The shift is evident in recent fund flows, with global investors moving away from U.S. tech stocks and into emerging and developed international markets. India, with its lower valuations and strong macroeconomic growth, has become an attractive destination. This shift is supported by domestic market reforms and improved regulatory clarity.

What Are Analysts Watching Next?

Policy developments in India continue to shape investor sentiment. The government's proposal to allow NRIs to invest directly in equities is part of a broader strategy to attract foreign capital. While some analysts caution that the impact will depend on implementation, others see it as a positive step toward market liberalization.

The Reserve Bank of India (RBI) is also navigating a challenging fiscal environment. With state borrowing projected to hit record levels, banks have raised concerns about the accounting rules for state bonds. Current valuations can lead to paper losses for banks, particularly for bonds from fiscally stronger states. The industry is urging the RBI to revise the valuation framework.

How Might This Affect the Market?

India's equity markets are poised for a stronger performance in 2026, supported by both policy and market dynamics. The trade deal with the U.S. has improved investor confidence, while the RBI's likely decision to maintain stable interest rates provides further clarity.

Domestic banks like Bank Mandiri are reporting robust growth in 2025 and maintaining disciplined strategies for 2026. The bank is targeting a 4.6%-4.8% net interest margin while managing liquidity and asset quality. These fundamentals reinforce India's appeal as a high-growth market.

At the same time, global investors are shifting toward non-U.S. markets as U.S. valuations remain elevated. The MSCI United States Index trades at a forward P/E of 22.27, significantly higher than the MSCI Emerging Markets Index at 13.59. This valuation gap is driving inflows into markets like India, where growth is expected to outpace most developed economies.

Despite recent optimism, challenges remain. Foreign outflows from Indian equities were significant in 2025, with nearly $19 billion leaving the market. However, domestic retail and institutional investors have helped cushion the decline. As NRIs and foreign portfolio investors begin to participate more directly, market liquidity could improve further.

The outlook for Indian markets in 2026 is cautiously optimistic. With structural reforms, improved governance, and external growth drivers, the country is gaining traction with a broader range of global investors.