Outflows come as foreign investors flee country’s markets at fastest pace ever this year.

Indian firms are making a record number of foreign acquisitions, and the timing is just right. The rupee is already the weakest currency in Asia this year, foreign investors have been withdrawing from Indian markets at the fastest rate since the country opened up to foreign investment in 1993 and India’s energy import bill has risen sharply due to the Iran war. In all that, corporate India is now issuing some of the biggest foreign cheques in the country’s history.

The scale of the outflows

In the first four months of the fiscal year, which started on April 1, Indian companies announced investments abroad of over $14 billion, compared with $18.7 billion in the entire previous fiscal year. Outbound investment is expected to easily surpass full-year records at this rate. According to Business Standard, outbound FDI increased to $48.6 billion in FY26 from $41.6 billion in FY25, with financial services becoming the top contributor and its contribution growing by 12.31 percentage points from FY21 to FY26.
Total outbound FDI had already jumped 47% year-on-year to $35.8 billion, as of January, while capital repatriation by multinationals was almost unchanged at $52.1 billion on a 12-month trailing basis. The mix has reduced India’s net FDI inflows to a near all-time low of $500 million as of January, according to Morgan Stanley analysts.
In a recent report, Saurabh Mukherjea, founder of Marcellus Investment Managers, said that India’s net FDI inflows were expected to be negative or close to zero “for several years to come,” which would have “major implications for the Indian economy and its currency.

The deals leading the charge

The biggest deal is Sun Pharma’s $11.7 billion deal for Organon, an American company, in April, India’s largest-ever foreign acquisition. Kirti Ganorkar, the managing director of Sun Pharma, told investors that it would aid the company to expand its reach to new markets, including China. The transaction is a good example of the vision and the volume of the current outbound investment trend.
Persistent Systems, an IT services provider, has submitted a €1.3 billion offer to buy Nagarro, a Munich-based company, in June, hoping to extend its European footprint following years of being almost entirely dependent on the U.S. market. Sandeep Kalra, the chief executive of Persistent Systems, was honest about the reason: “When we are a one-geography-dependent company, should the regimes in these US markets be negative on outsourcing to India, then we were overexposed. Some of the biggest Indian IT services exporters are pursuing a conscious diversification strategy due to the uncertainty of US trade policy on Indian IT outsourcing.
The deal strategy is being changed by geopolitics.
The Iran war and the disruption to the Strait of Hormuz have given a new twist to the thinking of corporate India in terms of overseas acquisitions. Minhaz Lokhandwala, a partner at JSA, was advising a client on the acquisition of a Middle East-based contract manufacturer, where he was looking to mitigate future supply chain risks like the Hormuz blockade. With the recent geopolitical concerns, there is definitely going to be more outflow in an attempt to build asset bases outside India, he said.
Raju Kumar, tax partner at EY, described the outbound push as commercially rational: “India as a country, with its corporations, is competing for resources, for technology, and in some cases competing for the market which is available.

The pressure on the Rupee

The outflows are coming at the wrong time for the currency. The rupee has been the weakest of all Asian currencies this year, losing over 6% of its value against the dollar. The Iran war kept crude prices high, with New Delhi spending over $60 billion on oil and gas in the June quarter alone, up 23% from the same period last year. India’s foreign exchange reserves have been reduced by $54 billion since the beginning of the conflict.
Foreign portfolio investors have been selling off Indian stocks at a faster pace, withdrawing over $23 billion till end-June, the highest amount in a year since the markets opened up to foreign investors in 1993. The FII exit has been blamed on the absence of Indian listed companies with AI champions, and the capital has been diverted to the US and a few Asian tech markets.
Morgan Stanley analysts cautioned that “sustained weakening of net flows could lead to a greater dependence on more volatile portfolio capital, which could have implications for external balance metrics, currency stability and financial markets. Authorities have been urging state-owned banks to draw in more foreign currency deposits from the Indian community abroad to bring in dollars.

The question of domestic investment

The wave of overseas acquisitions has also created a fault line in the domestic market. This year, the government’s chief economic adviser V Anantha Nageswaran expressed worry that Indian firms are not investing sufficiently in the country, despite their growing profits. In a panel last month, parliament member Bhartruhari Mahtab said it more succinctly: “Capital investment is not picking up in that line when government investment is increasing, capital investment is growing.
Former chief statistician Pronab Sen was more cautious: “When investors have doubts about returns in the domestic economy, they seek temporary opportunities overseas. The term ‘temporarily’ is important — it implies the current outbound surge may be partly cyclical, as a reaction to uncertainty, not a structural change in the nature of investment away from the domestic market.
But for now, the external account is being tested to the hilt by record outbound FDI, FII outflows at historic levels, a war-inflated energy import bill and a rupee under sustained pressure, which it has not been put to for well over a decade.