Amid concerns over foreign institutional investors (FIIs) pulling out of Indian markets, the World Bank has reaffirmed its confidence in India’s economic trajectory. Speaking at the Advantage Assam 2.0 Business Summit, World Bank Country Director Auguste Tano Kouame dismissed worries over short-term fluctuations, calling India “the shining light in the world” and urging global investors to capitalise on its growth.
“We are not worried about India’s growth at the moment. We are very bullish about India and will remain bullish,” Kouame said, adding that minor variations in growth rates do not impact the bigger picture. “If somebody is worried about recent data, we would like to say that don’t worry. India is the shining light in the world. If you are looking to invest, then come and invest here. The Indian growth makes it the place to invest.”
Investor Concerns Amid Market Sell-Off
Kouame’s remarks come at a time when FIIs have been exiting the Indian stock market, triggering a significant downturn in the Sensex and Nifty. Since October 2024, global investors have pulled out nearly ₹2 lakh crore worth of shares, leading to over 10% decline in the Sensex. The broader indices have been hit harder, with the BSE Midcap falling 19% and BSE Smallcap retreating 21% during the same period.
The sell-off has continued into 2025, with FIIs offloading nearly ₹1 lakh crore worth of shares in just 33 trading sessions till February 14. This trend is not exclusive to India, as most major emerging markets (except Thailand) have also witnessed negative FII flows. According to Kotak Securities, India, Brazil, Indonesia, Malaysia, the Philippines, South Korea, Taiwan, and Vietnam all faced outflows, while Thailand was the only exception, attracting $17 million in FII inflows.
Analysts attribute this capital flight to shifting global economic policies, particularly rising bond yields in the US, which have made American assets more attractive to investors. Vipul Bhowar, Senior Director-Listed Investments at Waterfield Advisors, explained that higher US bond yields have prompted FIIs to pivot away from Indian and other emerging market stocks, favoring the perceived safety of US equities.
Adding to investor concerns is a slowdown in corporate sales growth. The combined gross sales of Nifty50 companies grew by 6.6% year-on-year in the December 2024 quarter, down from 9.2% in the corresponding quarter of the previous year. This sluggish growth has dampened enthusiasm for Indian equities, further fueling the exodus of foreign capital.
Despite strong macroeconomic fundamentals, the Indian market remains vulnerable to external headwinds. Shrikant Chouhan, Head of Equity Research at Kotak Securities, noted that markets are currently focused on downside risks, including tariffs imposed by the US on Indian exports, domestic growth uncertainty, and lackluster corporate earnings in Q3 FY25. Given these factors, Chouhan predicts that foreign portfolio investment (FPI) flows are likely to remain volatile in the near term.
IMF on India’s Growth: Slowdown is Temporary
India’s GDP growth had slowed to a near two-year low of 5.4% in the July-September quarter, primarily due to weak performance in manufacturing and mining sectors and subdued consumption. However, IMF Deputy Managing Director Gita Gopinath last month said that India’s economic slowdown was temporary, and the country was expected to achieve 6.5% GDP growth this fiscal year.
“We see it as a temporary thing. There have been some delays in implementing some of the public infrastructure projects, but we see that picking up. We do continue to see strength in rural consumption,” Gopinath said in an exclusive interview with Business Today. Gopinath asserted that a recovery is on the horizon, stating, “For the fiscal year as a whole, our growth number is 6.5%. So we do expect to see a recovery.”