The easing of trade and regulatory uncertainty following a potential India-US trade deal could significantly accelerate capital formation in the Indian stock market, according to Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey.
Speaking at SEBI's inaugural pan-India outreach program for corporate bonds in Mumbai on Wednesday, February 4, 2026, Pandey highlighted that the removal of regulatory overhang and trade frictions typically spurs capital formation by reducing uncertainties. He observed that markets have generally perceived the progress in trade negotiations as a positive step toward reducing external uncertainty, even amidst volatile foreign investor flows into Indian equities.
While acknowledging the potential positive impact of a trade deal, Pandey also noted that foreign portfolio investors (FPIs) and foreign institutional investors (FIIs) would likely consider the risk-return dynamics in Indian capital markets before making decisions to re-enter. He added that the trade deal could lead to beneficial movements in the exchange rate, fostering greater stability and predictability.
Pandey's comments come against the backdrop of substantial foreign investor outflows from the Indian stock market in the past year, driven by uncertainties surrounding the India-US trade deal, coupled with concerns about weak corporate earnings and high valuations. Data from the National Securities Depository Ltd. indicates that FPIs recorded a net outflow of ₹1.66 trillion from the equities market in 2025, a stark contrast to the inflows of ₹427 crore in 2024.
In addition to the potential trade deal, SEBI is actively focusing on deepening the corporate bond market to further drive capital formation. Pandey emphasized the need for growth in bond markets, noting the potential of increased public issuances and greater issuer diversity. Industry leaders have also proposed new mandates to enhance the corporate bond market. SEBI is also focused on reducing trade frictions and removing regulatory uncertainties to attract more foreign portfolio investors (FPIs), through initiatives such as digital document submission and simplified block deal frameworks.
Furthermore, Pandey stressed the importance of investor awareness and guidance, particularly for retail investors who may be hesitant about equity risks but could find suitable opportunities in the bond market. With India's large investor base of 138 million, SEBI aims to facilitate access to the bond market and promote diversification according to individual life cycle needs and risk profiles.
Pandey also addressed concerns regarding the securities transaction tax (STT) hike on derivatives transactions proposed in the 2026 Budget. While acknowledging the potential impact on market participants, he stated that SEBI would maintain the "status quo" on the derivatives market, emphasizing a data-driven approach to regulation and dismissing expectations of immediate regulatory intervention.