Amid heightened volatility in global markets linked to evolving US trade policy, Securities and Exchange Board of India Chairman Tuhin Kanta Pandey has cautioned against attributing foreign institutional investor behaviour to single headline events. Speaking at the latest PMS Conclave organised with NISM and APMI, Pandey emphasised that portfolio flows into emerging markets such as India are shaped by broader global capital allocation dynamics rather than one off developments like tariff announcements.

His remarks come at a time when investors have been closely tracking foreign flows for cues on market direction. Recent weeks saw intermittent selling by foreign investors following uncertainty around US trade actions, including a temporary global import surcharge that took effect in late February 2026 after the US Supreme Court struck down a broader tariff framework. Market participants initially linked these moves directly to tariff developments, but the regulator’s chief suggested such interpretations may be overly simplistic.

Pandey noted that global investors continuously compare opportunities across jurisdictions based on risk adjusted returns in dollar terms. Capital allocation decisions, he said, are influenced by factors such as growth prospects, interest rate differentials, currency expectations, taxation, and geopolitical risk. In that context, India competes with other emerging and developed markets simultaneously, and inflows or outflows reflect relative attractiveness rather than absolute sentiment toward the country.

He also highlighted the inherently fluid nature of portfolio investment. Unlike long term strategic capital, FII money can move rapidly across markets as conditions evolve. Investors retain complete flexibility to exit and re enter depending on changing risk reward profiles. This “in and out” characteristic, according to Pandey, is fundamental to portfolio flows and should not be viewed as a signal of structural disengagement whenever outflows occur.

Importantly, the SEBI chief pushed back against the narrative that the recent tariff measures alone triggered capital movement. He indicated that isolating a specific policy event as the primary driver ignores the complex matrix of global factors influencing investment decisions. Such remarks reflect the regulator’s effort to temper market reactions that often amplify volatility through oversimplified cause and effect assumptions.

Pandey also pointed out that foreign participation in Indian markets has remained broad based despite episodic net selling. FIIs continue to engage in both primary and secondary markets, including participation in equity issuances, block deals, and trading activity. This suggests that while short term flows may fluctuate, underlying engagement with Indian capital markets has not diminished materially.

For India, these comments carry significant implications. Domestic equities have increasingly relied on local institutional investors and retail participation to offset foreign volatility. However, sustained FII flows remain crucial for liquidity, valuation support, and currency stability. By framing foreign investment behaviour as cyclical rather than event driven, the regulator appears to be signalling confidence in India’s structural attractiveness.

From a macro perspective, global trade tensions and policy shifts in major economies often influence risk appetite toward emerging markets. Higher tariffs or protectionist measures can slow global growth expectations, strengthen the US dollar, and push investors toward safer assets. Conversely, easing tensions or stronger growth prospects in emerging economies can revive flows. The recent reversal from outflows to inflows by late February underscores this fluidity.

For Indian markets, the key takeaway is that volatility in foreign flows may persist as long as global uncertainty remains elevated. However, structural factors such as India’s growth trajectory, corporate earnings outlook, and domestic liquidity could cushion the impact.