FDI in India: a deepening global footprint

Please find below our latest thoughts on India:

• Much has been written about foreign equity outflows from the Indian market over the last year, with selling pressures increasing in recent months. In fact, Indian equities faced record foreign institutional investor (FII) outflows of USD 19 billion in 2025.¹
• Although domestic flows into equities, ETFs, and mutual funds of USD 63 billion has been a stabilising force and more than makes up for the foreign outflows, the direction of FII capital movement has impacted sentiment and put pressure on the rupee.¹
• Against this backdrop, India’s equity market delivered relatively modest headline gains in 2025 (in local currency terms) after several previous years of more impressive returns.
• A key reason for the India market weakness was a broad macro-economic slowdown. Monetary and fiscal policy were tightened to prevent excessive growth, which could have led to inflationary pressures. This was, therefore, in very much a self-managed slowdown in our view rather than an indication of structural economic weakness.
• Additionally, external pressures such as geopolitical tensions and US tariff threats spooked international investors who preferred to look elsewhere, especially markets benefiting more directly from the AI build-out.
• The result was a period of slower than expected corporate earnings. Indian corporate earnings growth slipped into single digits and a weakening rupee eroded dollar- and euro-denominated returns for foreign investors.
• Despite sluggish capital markets, we note that foreign direct investment (FDI) into India has steadily progressed. FDI inflows totalled USD 81 billion in FY25 and USD 52 billion in the first six months of FY26 (Apr-Sep 2025).²
• FDI has long played a defining role in India’s economic transformation. The combination of geopolitical realignments, supply-chain diversification, domestic policy reforms, and India’s maturing consumer and industrial base has encouraged multinational corporations to deepen their presence in India over the last few years.
• Services, software, hardware, and manufacturing have been key beneficiaries, as firms across the US, Japan, Germany, and Korea, in particular, have scaled up on-ground Indian operations.
• Government policy has supported FDI and has been steadily opening sectors such as insurance — where foreign ownership limits have been raised from 74% to 100%. 
• Several major global corporations have taken decisive steps toward establishing or expanding India operations:
  
  
  • Airbus is deepening its India footprint through manufacturing, engineering, training, and supply-chain partnerships. It aims to source USD 2 billion worth of components from India by 2030 and is producing military aircraft in partnership with a domestic partner.³
  • Apple has sharply ramped up iPhone assembly in India, where it now manufactures the entire iPhone 17 line-up. This denotes a pivotal role for India’s electronics sector in global supply chains.⁴
• India has been largely overlooked among global equity investors chasing the AI investment surge amid fears that it lacks AI hardware know-how or that entry-level coding roles are being rapidly automated, eroding India’s key advantage in its large IT services industry.
• However, firms like Google, Amazon, and Microsoft have committed significant capital to India to grow cloud and AI infrastructure, aiming to capitalise on the skilled domestic engineering workforce.

• Perhaps even more notable is that India represents the biggest user base for a number of large platforms. So while it may be lagging on the back end of AI, India is leading as an AI consumer.

• Elsewhere, there is growing evidence of strategic foreign investors entering India’s financial services sector. 
• Two of Japan’s leading banking giants have acquired meaningful stakes in Indian banks and lenders. Sumitomo Mitsui Banking Corporation (SMBC) and Mitsubishi UFJ Financial Group (MUFG) have both recently acquired stakes in domestic businesses, signalling confidence in India’s long-term financial growth prospects.
• As multinational firms embed India deeper into their value chains, we see the market as an increasingly indispensable node in global production, innovation, and capital-market flows.
• As such, a supportive policy environment and rising productivity reinforce India’s position as a strategic growth market over the long term, in our view.

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