Net FDI trend reversed pre-war, surged to $4.6 billion in February, Pg15

Key Highlights:

• India's net FDI surged to $4.62 billion in February 2026, the highest in nearly four years, after a six-month gap of negative inflows.
• The increase followed the signing of an interim trade deal between India and the US, reducing tariffs.
• Total FDI for the first 11 months of FY26 reached $6.27 billion, over four times higher than the same period in FY25.
• Gross FDI for April 2025-February 2026 stood at $88.30 billion, an 18% year-on-year increase.
• FPIs bought $4.17 billion of equity and debt in February, but exited Indian financial markets in March due to the West Asia war.
• The RBI net bought $7.41 billion of foreign currency in February, the most in 11 months, to bolster foreign exchange reserves.

Detailed Insights:

• The surge in net FDI in February was driven by higher gross inflows of $8.98 billion and a sharp decline in repatriations by foreign investors to $1.74 billion.
• Weak net FDI numbers have been a concern for policymakers as they have weighed on the rupee’s exchange rate, along with the dumping of Indian stocks and debt by FPIs.
• Outward FDI from India in February remained robust at $2.63 billion, with approximately 75% directed towards Singapore, the UAE, and the UK.
• The war in West Asia led to FPIs exiting Indian financial markets to the tune of $13.6 billion in March, causing the rupee to depreciate.
• The RBI sold $166 billion of foreign currency on a gross basis between April 2025 and February 2026 to stabilize the rupee, significantly lower than the $400 billion in 2024-25.
• A sustained weakening in net FDI flows could increase reliance on more volatile portfolio capital, potentially impacting external balance metrics, currency stability, and financial markets.

Key Concepts Involved:

• Foreign Direct Investment (FDI): Investment made by a firm or individual in one country into business interests located in another country.
• Foreign Portfolio Investment (FPI): Investment in the financial assets of a foreign country such as stocks or bonds.
• Repatriation of FDI: The process of foreign investors taking back money previously invested in a host country, including profits, dividends, or sale of assets.