India Sees Record Low FDI: IPO Boom and Global Investments Drive Decline
India’s net foreign direct investment (FDI) plummeted by a staggering 96.5% in the fiscal year 2024-25, reaching a record low of $353 million. This sharp decline, according to the Reserve Bank of India (RBI), is attributed to a combination of factors, including a red-hot initial public offering (IPO) market that offered lucrative exits for long-term investors and increased overseas investments by Indian firms.
FDI Flows Shift: Exits vs. Inflows
The RBI data reveals that while India received $81 billion in gross inward FDI, representing a 13.7% year-on-year growth, the outflow of direct investments by Indian companies surged to $29 billion, up from $17 billion in the previous year. This resulted in a significant net FDI reduction.
A key driver of this trend is the increasing repatriation of foreign investments. In FY24-25, $49 billion was withdrawn from India compared to $41 billion in the previous year. This surge in withdrawals is linked to high-profile IPOs like Swiggy and Vishal Mega Mart, where investors like Alpha Wave Global and Partners Group realized substantial returns.
IPO Exits Fuel Repatriation
The Indian IPO market witnessed a boom in FY24-25, with several companies, including Hyundai Motor and Swiggy, choosing to go public. These IPOs provided attractive exit opportunities for investors, leading to a significant inflow of capital back into their home countries.
Commenting on the trend, the Indian Venture Capital and Alternate Capital Association (IVCA) and EY reported that “open market exits dominated, while PE-backed IPOs gained momentum, supported by a capital market offering robust opportunities for investor exits”.
Global Investment Trends
Experts believe that the increase in overseas investments by Indian firms reflects a broader trend of globalization and the desire to tap into emerging markets.
The RBI data highlights that investment remains concentrated in sectors like manufacturing, financial services, electricity & energy, and communication services, which collectively account for over 60% of total FDI.
Positive Signals for India’s Economy
Despite the record low net FDI figure, there are positive takeaways. The robust growth in gross inward FDI and the healthy performance of the IPO market indicate a maturing and dynamic Indian economy.
The ease with which foreign investors can enter and exit the market, as reflected in the recent IPO activity, is a positive sign for the long-term health and stability of the Indian economy.
