Foreign portfolio investment (FPI) flows into India are expected to remain subdued in the near term as the country’s attractiveness diminishes compared to other emerging markets (EMs), according to a report by Kotak Institutional Equities.
The report raised concerns about deteriorating capital inflows, increasing current account pressures, and a weakening earnings outlook. It noted that India’s dependence on external capital has become more pronounced over the past two years. “We expect FPI flows to stay muted, given India’s low attractiveness versus other EM markets,” the report stated.
Kotak further elaborated that India faces a combination of diminished earnings growth for FY2027 in both quality and quantity, along with negative exposure to the ongoing cycles in artificial intelligence and semiconductors. Additionally, adverse impacts from commodity prices, particularly crude oil and natural gas, were highlighted as further deterrents for investors.
The report indicated that other emerging markets currently provide more attractive opportunities related to AI and commodities, making them appealing to global investors. Kotak observed that large FPI outflows from Indian equity markets reflect a significant decline in relative returns amid ongoing compression of earnings growth expectations.
India has seen a sharp downturn in capital account flows in recent years. Annual capital inflows, which averaged about $73 billion during FY2019-2024, fell dramatically to $17 billion in FY2025 and are projected to become negative at around $5 billion in FY2026. Furthermore, net foreign direct investment (FDI) inflows have also notably decreased, dropping from $37 billion between FY2019-2023 to just $1 billion in FY2025.
Kotak cautioned that India’s current account deficit (CAD) could expand further due to high crude oil prices, imposing additional pressure on the balance of payments. The report emphasized that increased net FDI flows and rising FPI outflows have coincided with a growing CAD, driven by global energy prices.
In comparison to several global and emerging markets, India has underperformed over the last five years. Since August 2024, the MSCI India index has significantly lagged the broader MSCI Emerging Markets index. The brokerage concluded that unless India effectively addresses its structural current account challenges and enhances its earnings outlook, foreign capital inflows may continue to face pressure.
Published on May 26, 2026
