India Attracts Global Capital Amidst Market Volatility

India is positioning itself as a compelling destination for global capital, even as the international investment landscape remains volatile with geopolitical shifts and commodity price fluctuations. This appeal stems from the nation’s strong growth potential, stable macroeconomic conditions, and consistent policy framework.

A significant contributing factor to this favorable environment has been the recent easing of geopolitical tensions in West Asia. This development has led to a moderation in crude oil prices, which directly benefits India as a major oil importer.

Macroeconomic Stability and External Performance

Lower crude oil prices help alleviate inflationary pressures within the economy. They also boost corporate profitability, enhance external balances, and stabilize the Indian currency, addressing challenges largely driven by external factors in the past year.

The country’s macroeconomic resilience is particularly evident in its external sector performance. Despite substantial merchandise trade deficits, the current account deficit has remained exceptionally low.

• India recorded a merchandise trade deficit of USD 337 billion in FY26.
• The current account deficit stood at a remarkably low 0.6% of GDP, among the lowest for major emerging markets.
• Strong services exports, reaching USD 217 billion in FY26, are projected to grow to USD 245 billion in FY27.
• The final quarter of FY26 even saw a current account surplus of 0.7% of GDP, despite a merchandise trade deficit exceeding USD 83 billion.

Policy Measures to Attract Foreign Inflows

To further bolster its external financing position and attract long-term foreign capital, the Reserve Bank of India (RBI) and the Government have implemented coordinated policy measures. These initiatives aim to enhance currency stability, a crucial element for foreign investors.

These policy interventions include measures related to FCNR deposits, external commercial borrowings, and tax incentives for foreign investors in government securities. They are designed to streamline capital inflows and improve the balance of payments.

• Expected capital inflows during FY27 from these measures: approximately USD 40-50 billion.
• Potential additional inflows if India gains further inclusion in global bond indices: USD 15-20 billion.

Domestic Resilience Countering FII Caution

While foreign institutional investors (FIIs) have shown caution, selling nearly USD 30 billion in Indian equities year-to-date in 2026, the investment landscape is becoming more constructive. This FII selling was attributed to global risk aversion and elevated US yields.

Despite FII outflows, India is increasingly viewed as a prime destination for capital redeployment, supported by decreased FII ownership and more reasonable valuations. Domestic institutional investors (DIIs) have provided a strong counterbalance.

• FIIs sold nearly USD 30 billion in Indian equities year-to-date in 2026.
• DIIs purchased USD 8.7 billion in equities in May 2026, significantly offsetting FII selling.

The deepening domestic investor ecosystem, marked by stable Systematic Investment Plan (SIP) inflows and continuous mutual fund deployments, underscores a vital source of resilience for Indian capital markets.