Indian companies are on course to record their highest-ever level of outbound investments this fiscal year, increasing pressure on the rupee as capital continues to flow overseas amid declining foreign investment and rising import costs.
Companies have announced overseas equity investments worth more than $14 billion during the first four months of the fiscal year that began on April 1, following outbound investments totaling $18.7 billion during the previous 12 months. The increase comes as foreign investors have withdrawn more than $23 billion from Indian markets by the end of June, marking the fastest pace of capital outflows on record this year, according to the report.
The rupee has weakened by more than 6 percent against the US dollar this year, making it one of Asia’s poorest-performing currencies. The report attributes additional pressure on the currency to higher energy import costs following the conflict involving Iran. India spent more than $60 billion on oil and gas imports during the June quarter, an increase of 23 percent compared with the same period last year, while the country’s foreign exchange reserves have declined by $54 billion since the conflict began.
Authorities have responded by attempting to attract additional dollar inflows. According to the report, the government has encouraged state-owned banks to increase foreign currency deposits from the Indian diaspora as part of broader efforts to support the country’s foreign exchange position.
At the same time, Indian companies have accelerated overseas acquisitions as geopolitical uncertainty and trade tensions reshape global business strategies. The report says concerns linked to the Middle East conflict and tariffs imposed by US President Donald Trump have prompted companies to diversify their markets and supply chains through international expansion.
In April, Sun Pharma announced the acquisition of US-based Organon for $11.7 billion, making it the largest overseas acquisition by an Indian company to date. Sun Pharma Managing Director Kirti Ganorkar told investors the transaction would help the company expand into new markets, including China.
Persistent Systems also announced plans in June to acquire Munich-based Nagarro through a €1.3 billion bid. Chief Executive Officer Sandeep Kalra said the acquisition would reduce the company’s dependence on the United States by expanding its presence in Europe. He told the Financial Times that relying too heavily on one market could expose the company to policy changes affecting outsourcing.
Legal and financial advisers said geopolitical risks are increasingly influencing investment decisions. Minhaz Lokhandwala, a partner at law firm JSA, said he was advising a client on the acquisition of a contract manufacturer in the Middle East to reduce exposure to potential supply chain disruptions similar to a blockade of the Strait of Hormuz. He said recent geopolitical developments are likely to drive additional capital outflows as companies establish assets outside India.
Outbound foreign direct investment had already been rising before this year. According to the report, total outbound FDI on a trailing 12-month basis increased 47 percent year on year to $35.8 billion in January, while repatriated investment remained nearly unchanged at $52.1 billion. Morgan Stanley analysts said in April that the trend had pushed India’s net FDI inflows to nearly an all-time low of $500 million in January. They warned that continued weakness in net inflows could increase dependence on more volatile portfolio investment, with consequences for India’s external balance, currency stability and financial markets.
The increase in overseas investment has also drawn attention from policymakers seeking stronger domestic capital spending. Member of Parliament Bhartruhari Mahtab said during a panel discussion last month that while government capital expenditure has increased, private investment has not expanded at the same pace. Chief Economic Adviser V. Anantha Nageswaran has also expressed concerns that Indian companies are not investing sufficiently within the country despite improving corporate profitability.
Some analysts and advisers argued that the trend reflects commercial strategy rather than reduced confidence in the domestic economy. EY tax partner Raju Kumar said overseas investments are driven by business considerations as Indian companies compete internationally for technology, resources and market access. Saurabh Mukherjea, founder of Marcellus Investment Managers, wrote in a report last month that India’s net FDI inflows are likely to remain negative or close to zero for several years, adding that the trend could have significant implications for the country’s economy and its currency.
