There’s nothing to gain from avoiding the numbers. FPIs have withdrawn more than ₹3 lakh cr from Indian equities in the first 9 mths of 2026, already the largest annual exodus of foreign portfolio capital since records began. It’s a figure that has caused concern among international institutional and retail investors alike, and understandably, closer to home, in the corridors of power in Delhi.
‘There are some concerns. Foreign capital has not been very forthcoming of late,’ acknowledged Alok Tiwari, joint secretary in finance ministry’s Department of Economic Affairs, in late August. For a country now increasingly viewed as one of the world’s great economic powers by East and West alike, there is rightfully cause for unease. Record outflows should prompt introspection after years of seemingly uninterrupted macroeconomic tailwinds around the India Story.
Yet, the investment landscape is nowhere near as gloomy as some headlines suggest. While foreign investors have withdrawn a significant amount of capital from India’s secondary equity market this year, they have simultaneously invested more than ₹47,000 cr in Indian IPOs.
So, while we see record levels of foreign portfolio outflows, this year has also seen India become the world’s busiest IPO market. The India Story hasn’t collapsed. On Tuesday, IMF raised India’s growth forecast for 2026-27 to 7%, from 6.4% projected in July. Neither have international investors suddenly stopped believing in India’s long-term economic trajectory. PwC’s latest global CEO survey found that India had risen to 2nd place among preferred destinations for international investment, level with Germany and Britain, and behind only the US. Instead, global investors are becoming more selective about what they buy, where they invest, and what returns they expect to receive.
In India, foreign investors are simultaneously selling parts of the old economy and buying pieces of the new. They are offloading expensive existing stocks in historically favoured sectors, such as IT and consumer businesses, while securing allocations in new businesses at predetermined prices.
New offerings have increasingly provided access to sunrise sectors including electronics manufacturing, consumer technology and renewables. India is also operating in a very different international investment environment from even a year or two ago.
Rise of contemporary India has seemed inevitable, and the country’s proposition to global capital is self-evident, from its enormous consumer market to the opportunity presented to global companies diversifying supply chains away from China. But with the advent of AI, rupee volatility and a host of short-term cyclical factors, India now faces much greater competition for global capital. Simply put, every institutional investor deciding to allocate a dollar, dirham or euro elsewhere is doing so because they view the alternative as more compelling.
India’s weighting in MSCI Emerging Markets Index fell to 10.87% in June, close to half of its 2024 peak, as international capital shifted towards semiconductor and AI-linked companies in East Asia. Bank of America’s August survey of Asian fund managers is perhaps even more telling. India was a net 32% underweight, compared with net overweight positions of 55% in Taiwan, and 50% in Japan. Most strikingly, 28% of respondents identified the lack of a clear AI investment play as their biggest concern about India.
This doesn’t mean that Delhi should mirror Taipei or Tokyo. It does, however, expose a considerable disconnect between what is being built in India and what international portfolio investors believe is available to invest in.
Rather than simply offering additional incentives, India and its corporations must better identify, package and articulate opportunities originating from its AI ecosystem and other linked industries. Firms must become considerably more sophisticated in international investor relations, transparency and reputation management.
Fundamentally, they need to demonstrate why international institutions should allocate capital to them rather than to an increasingly compelling universe of alternatives. There is already an encouraging domestic blueprint in smartphone manufacturing. As recently as a few years ago, India had a negligible presence in iPhone manufacturing and exports. Today, iPhone is India’s largest branded export, and more than 40 domestic companies form part of Apple’s supplier ecosystem.
This transformation did not happen solely because India told one of the world’s biggest companies about its enormous population or favourable demographics, but because it identified a strategically important global industry and constructed a clear, investable proposition around it. This gave international capital a reason to choose India. AI and other industries must now do the same.
Long-term, the India Story remains one of the most compelling investment opportunities in the world. But its narrative must mature as oil prices, US bond yields and geopolitics evolve in ways Delhi cannot control. Reputation management must increasingly be understood as part of the competition for international capital. Articulating India’s opportunities to global investors and providing evidence, rather than relying on assumption, that its companies and industries offer advantages competing markets cannot.
For years, international investors would worry about missing India’s rise. Now, increasingly, India must demonstrate why they should prioritise it.
The writer is partner and India head, Michael Macfarlane Associates
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
