Opinion Tepid foreign investor interest is worrying
The lukewarm foreign investor interest in India may also have to do with its not being part of the artificial intelligence euphoria, which has fuelled equity markets in the US as well as China, Taiwan and Korea.
At the end of the day, India needs foreign capital not only to fund its current account balance of payments deficits, but also for investment leading to job generation, knowledge diffusion and technology. 
The year 2025 has seen foreign portfolio investors (FPI) pull out a record $18 billion (Rs 1,58,000 crore)-plus from Indian markets through net sales of equity. This, together with declining foreign direct investment, notably since 2023-24, should be cause for concern. If GDP growth in India is averaging 8 per cent annually, why isn’t that being reflected in foreign capital inflows? An economy growing at these rates should be attracting commensurate interest from overseas investors wanting to partake in the growth story. If the large IPOs by the South Korean companies Hyundai Motors and LG Electronics — or the Chinese home appliances major, Haier, recently offloading a 49 per cent stake in its wholly owned Indian arm — are any indication, foreign investors seem more inclined to raise money from, rather than infuse fresh capital into, India.
This lack of enthusiasm is quite in contrast to the bullishness of domestic investors, at least when it comes to collections by mutual funds under systematic investment plans. These totalled Rs 3,03,978 crore during January-November, more than twice the net equity sales of Rs 1,43,675 crore by FPIs for the same period. What is holding back foreign investors? Is it something about the Indian economy, or even the official growth numbers? One reason may be relatively high global interest rates. When 10-year bond yields are at 4.1-4.2 per cent in the US and 2-2.1 per cent in Japan, it draws that much capital away from emerging markets. But FPIs have been net sellers only in Indian equities. In debt and other non-equity instruments, they have actually been net buyers to the tune of $7.2 billion so far this calendar year. Thus, they appear comfortable investing in safe government bonds, as against riskier equity assets, which entails taking a more bullish view of the Indian economy’s growth prospects.
The lukewarm foreign investor interest in India may also have to do with its not being part of the artificial intelligence euphoria, which has fuelled equity markets in the US as well as China, Taiwan and Korea. But limited AI exposure shouldn’t be a liability in itself when India can boast of advantages in other sectors such as renewables, digital platforms, IT and financial services. At the end of the day, India needs foreign capital not only to fund its current account balance of payments deficits, but also for investment leading to job generation, knowledge diffusion and technology. All the more reason for the government to address the concerns of investors, both foreign and domestic, and ask why they aren’t investing.
Share
