Introduction
Foreign Investments are considered crucial for nations, especially for an emerging economy like India. Foreign Investors can be classified majorly as Foreign Direct Investments (FDIs) and Foreign Portfolio Investments (FPIs). FDIs are investments to acquire a substantial ownership stake in a company or project by an investor, company, or government from another country that directly augments the production of goods and services in an economy. FPIs investments by non-residents in Indian financial assets shares, government bonds, corporate bonds, convertible securities, and infrastructure securities. FPIs comprise investment groups such as Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs), and subaccounts. FIIs are big investor institutions Pension Funds, Mutual Funds, Insurance Companies, etc.
In India, both domestic and foreign investments are vital and contribute enormously to the nation's expansion. India is considered one of the fastest emerging economies in the world and a leading country in attracting foreign investments. India has several investment opportunities in its equity market for local and Foreign Institutional Investors (FIIs). Since its inception in 1992, India’s FII investments have largely remained positive.
The FIIs poured a massive US$ 60.31 billion into Indian equities from March 2009 to November 2010 and lifted the Nifty from around 2,500 to 6,300. Similarly, during the Covid crisis, when the Nifty recovered and surged from around 8,000 (April 2020) to 18,600 (October 2021), the Indian markets saw investments of US$ 38 billion by FIIs. Moreover, FPIs have cumulatively invested US$ 20 billion between March-August (2023) before becoming net sellers in Asia's third-largest equity market in September. Foreign Institutional Investors (FIIs) booked profits in FY25, offloading Rs. 1.27 lakh crore (US$ 14.89 billion), while Domestic Institutional Investors (DIIs) remained consistent buyers, investing Rs. 6.06 lakh crore (US$ 71.04 billion). March 2025 saw reduced FII selling, with DIIs continuing their strong buying streak throughout the year.
Recent Developments
India has taken several initiatives recently to attract more foreign capital to the country. These initiatives have made it an attractive destination for investments. India-focused offshore funds have been able to generate more returns compared to other funds in emerging markets, which has attracted foreign investors to the country. Some of the recent developments in foreign investments are listed below:
- Private equity investment inflows into the Indian real estate sector rose to Rs. 20,470 crore (US$ 2.40 billion) in the H1 2025, marking a 38% YoY increase, with momentum accelerating in the Q2 2025 as inflows doubled sequentially to Rs. 13,646 crore (US$ 1.60 billion), driven by strong investor interest in commercial office assets, hospitality, and alternative segments such as student housing.
- According to the Department for Promotion of Industry and Internal Trade (DPIIT), India's cumulative FDI inflow stood at Rs. 91,45,988 crore (US$ 1.07 trillion) between April 2000-March 2025.
- India also had major FDI inflows during April 2000-March 2025, coming from Mauritius at Rs. 15,36,849 crore (US$ 180.19 billion) with a total share of 25%, followed by Singapore at 24% with Rs. 14,91,603 crore (US$ 174.88 billion), the USA at 10% with Rs. 6,02,574 crore (US$ 70.65 billion), the Netherlands at 7% with Rs. 4,54,613 crore (US$ 53.3 billion), and Japan at 6% with Rs. 3,78,653 crore (US$ 44.39 billion).
- In May 2025, private equity (PE) and venture capital (VC) investments reached Rs. 20,470 crore (US$ 2.4 billion) across 97 deals.
- India's National Stock Exchange (NSE) had the fifth-largest market capitalization in the world, with a total market value of Rs. 4,58,51,000 crore (US$ 5.37 trillion) as of July 17, 2025.
- Till July 17, 2025, the NIFTY 50 traded near the 25,111 mark and Sensex surpassed 82,259 on the back of strong inflows from domestic institutional investors (DIIs).
- FY25 saw a total of 318 companies, comprising 79 mainline and 239 SME, raise Rs. 1,72,000 crore (US$ 20.17 billion) in initial public offerings (IPOs), surpassing the combined total raised in the last two fiscals, FY24 and FY23.
- Between FY20 and FY25, capital mobilisation through Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvITs) grew significantly, rising from Rs. 10,770 crore (US$ 1.26 billion) to a cumulative total of Rs. 1,60,000 crore (US$ 18.76 billion).
- In June 2024, foreign investors turned net buyers by infusing Rs. 26,565 crore (US$ 3.18 billion) into the Indian markets. This contrasted with the net outflow of Rs. 25,586 crore (US$ 3.06 billion) recorded in May. The positive inflow was driven by factors such as political stability and a sharp rebound in the domestic equity markets.
- According to a report by Colliers, between 2019 and 2023, foreign inflows comprised of 77% of the total institutional investment in Indian real estate sector with an average annual investment of US$ 4 billion.
Government/Regulatory Initiatives
The Government of India has taken several initiatives to improve regulations and attract foreign capital. India has set up an international stock exchange for assisting foreign investors investing in the country. The first India International Bullion Exchange (IIBX) at GIFT City was launched in July 2022. Apart from these, the government has undertaken several initiatives to attract foreign capital. Some of the recent government initiatives and regulations in the FII space are as follows:
- Securities and Exchange Board of India (SEBI), at its board meeting on June 18, 2025, introduced key reforms for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to enhance liquidity and investor confidence by streamlining fundraising norms, tightening sponsor lock-in requirements, improving disclosure standards, lowering investment thresholds, and expanding the role of merchant bankers.
- SEBI announced disclosure norms for foreign portfolio investors (FPIs) which will come into effect from November 1, 2023. Under these regulations, overseas funds that hold more than 50% of their equity investments in a single Indian corporate group or have more than Rs. 25,000 crore (US$ 3.01 billion) of equity assets under management (AUM) in the Indian market, will have to provide detailed information about their beneficial owners.
- The Reserve Bank of India has taken a number of actions to increase foreign exchange inflows. These actions consist of:
- Exempting additional Foreign Currency Non-Resident (Bank) [FCNR(B)] and Non-Resident (External) Rupee (NRE) deposits from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
- Authorization for banks to accept new FCNR(B) and NRE deposits without regard to current interest rate regulations until the end of October 2022.
- Inclusion of all new issuances of 7-year and 14-year G-Secs under the Fully Accessible Route (FAR) for FPls.
- Exemption from the short-term limit for FPls' investments in G-Secs and corporate debt made until October 31st, 2022.
- Permitting FPI in commercial paper and non-convertible debentures with an original maturity of up to one year.
- A temporary increase in the limit for external commercial borrowings (ECBs) under the automated route from US$ 750 million or its equivalent per fiscal year to US$ 1.5 billion.
- Increase in the all-in cost ceiling under the ECB framework by 100 basis points, subject to the borrower having an investment grade rating.
- Permission for AD Cat-I banks to use foreign currency borrowings made abroad to fund foreign currency loans to organisations for a variety of end uses other than exports.
- Liberalisation of Forex Flows was revised on 6th July 2022 to expand India’s external sector, diversify the sources of forex funding to mitigate volatility, dampening global spill overs and supporting exports of goods and services and rising remittances. Some measures are taken with the vision of enhancing India’s robust forex inflows while ensuring overall macroeconomic and financial stability.
- The Government of India increased FDI in the defence sector by increasing it to 74% through the automatic route and 100% through the government route.
Road Ahead
India has emerged as one of the most important global investment hubs in recent years. Despite global headwinds like geopolitical tensions, supply chain disruptions, and persistent inflationary pressures in key markets, the Indian economy and financial markets have demonstrated remarkable resilience. Strong domestic demand, steady capital inflows, and structural reforms continue to support growth and investor confidence in the current environment. Indian markets have provided good returns compared to other emerging markets. India is also one of the most attractive FDI destinations. India's cumulative FDI inflow stood at Rs. 91,45,988 crore (US$ 1.07 trillion) between April 2000-March 2025. This is expected to rise investors’ sentiment and increase global investments. India also has a strong start-up ecosystem: the number of Indian start-ups has increased from around 500 in 2016 to 1,59,000 as of January 2025. Of these, as of October 31, 2024, a total of 73,151 recognised startups in India had at least one woman director, highlighting the growing presence of women entrepreneurs across the country. India also had one of the best-performing IPO markets in 2025. Favourable government policies, increased infrastructure investment, relaxation of norms and improvement in financial infrastructure can further boost the inflow of foreign capital in the country in future.
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