Sari, sari night
The world is impressed by India's strong economic performance and, so, FDI has been booming. But readers may be surprised to hear that net FDI (NFDI) has actually been negative in the last 4 mths (-$2.40 bn in September 2025; -$0.167 bn in October; -$0.446 bn in November; -$1.61 bn in December).
Gross inflows have been substantial: $6.60 bn in September 2025; $6.54 bn in October; $6.41 bn in November; $5.84 bn in December. But outflows have exceeded inflows. This does not denote a crisis. Rather, it's something to cheer - the outflows reflect success.
There are two sorts of FDI outflows. One, Indian companies investing in equity abroad. This is still modest. Two, fast-growing outflow that represents repatriation of dollars brought in as FDI in earlier years. Indian market valuations have become so high that foreign investors think it worthwhile to have IPOs or secondary sales at high Indian market rates, and remit the proceeds home in dollars.
In October 2024, Hyundai's India unit raised more than $3 bn in the biggest-ever IPO. In 2025, LG Electronics sold 15% of its stake in its Indian subsidiary for the equivalent of $1.31 bn. India boasts a strong domestic investor base that has kept stock markets booming even though net FPI has been close to zero in the last 4 yrs.
The middle-classes have fallen in love with systematic investment plans (SIPs), in which investors deposit a certain amount every month into mutual funds regardless of market conditions. India now has become a strong market that is not hostage to sudden stops in FPIs, as in most Latin American and Asian countries.
This has some unexpected consequences. FDI is an equity inflow in forex that finances greenfield investments in India. Economists view this as far preferable to FPIs into stock markets, since factories cannot suddenly exit in troubled times the way portfolio flows can. However, many foreign direct investors have found they can use India's booming IPO market to sell part of their long-held Indian equity at a big profit and take the money out in foreign exchange. This, then, becomes negative FDI.
Outflows also occur when Indian startups - Swiggy and Paytm are good examples - have IPOs. Such startups were launched with little equity from Indian promoters who had great ideas but little money. They were financed overwhelmingly by international PE and VC players. This has led to a democratisation of capitalism.
Swiggy and Paytm lost money for years, and could never have attracted conventional finance, which required that companies have a track record of profits. Startups like Paytm required patient equity finance that would nurture them for up to a decade before turning profitable. PE-VC players were willing to pour money into thousands of Indian startups since they were impressed by the quality of entrepreneurial ideas. This huge increase in the entrepreneur base is an important reason for new dynamism of the economy.
When GoI opened space to the private sector, experts wondered if there would be any takers. The sector requires massive finance and hi-tech. But over 200 companies entered the sector, mostly startups financed by PE-VC. Similar stories can be told of many other sectors, including AI development.
When successful startups have good enough track records to launch IPOs, PE-VC investors can partially or fully exit at a huge profit. In some cases, these investors also make block sales to other foreign investors. Money from such exits is part of the reason for negative FDI. But from being a source of worry, we should celebrate it as a sign of booming, democratised capitalism. Global finance has found ways of financing entrepreneurs with good ideas that no government could have achieved.
For 2 yrs, India's IPO market has been red-hot, attracting massive investor interest, and record capital raising. In 2025 alone, companies across sectors lined up to sell shares to the public, with huge oversubscription and proceeds running into tens of billions of dollars.
Pipeline for 2026 remains substantial and diverse. Alongside traditional finance and tech names, new entrants are emerging. CleanMax Enviro Energy Solutions is launching a major RE IPO this month. XED Executive Development is set to launch the first IPO out of India's GIFT City financial hub in March. The markets themselves are experimenting with new technology, with firms introducing AI-driven platforms to streamline IPO execution.
The current boom may be excessive. Many recent IPOs are trading at or below issue price. India's IPO story is one of impressive scale and evolving maturity. But several startups will go bust, and the majority will never get near an IPO. The rise and fall of Byju's, once valued at $22 bn and now struggling to stay alive, shows that startups can be big frauds, too.
That is the price PE-VC investors are willing to pay in their search for a few big successes. This is what dynamic capitalism should look like.
Gross inflows have been substantial: $6.60 bn in September 2025; $6.54 bn in October; $6.41 bn in November; $5.84 bn in December. But outflows have exceeded inflows. This does not denote a crisis. Rather, it's something to cheer - the outflows reflect success.
There are two sorts of FDI outflows. One, Indian companies investing in equity abroad. This is still modest. Two, fast-growing outflow that represents repatriation of dollars brought in as FDI in earlier years. Indian market valuations have become so high that foreign investors think it worthwhile to have IPOs or secondary sales at high Indian market rates, and remit the proceeds home in dollars.
In October 2024, Hyundai's India unit raised more than $3 bn in the biggest-ever IPO. In 2025, LG Electronics sold 15% of its stake in its Indian subsidiary for the equivalent of $1.31 bn. India boasts a strong domestic investor base that has kept stock markets booming even though net FPI has been close to zero in the last 4 yrs.
The middle-classes have fallen in love with systematic investment plans (SIPs), in which investors deposit a certain amount every month into mutual funds regardless of market conditions. India now has become a strong market that is not hostage to sudden stops in FPIs, as in most Latin American and Asian countries.
This has some unexpected consequences. FDI is an equity inflow in forex that finances greenfield investments in India. Economists view this as far preferable to FPIs into stock markets, since factories cannot suddenly exit in troubled times the way portfolio flows can. However, many foreign direct investors have found they can use India's booming IPO market to sell part of their long-held Indian equity at a big profit and take the money out in foreign exchange. This, then, becomes negative FDI.
Outflows also occur when Indian startups - Swiggy and Paytm are good examples - have IPOs. Such startups were launched with little equity from Indian promoters who had great ideas but little money. They were financed overwhelmingly by international PE and VC players. This has led to a democratisation of capitalism.
Swiggy and Paytm lost money for years, and could never have attracted conventional finance, which required that companies have a track record of profits. Startups like Paytm required patient equity finance that would nurture them for up to a decade before turning profitable. PE-VC players were willing to pour money into thousands of Indian startups since they were impressed by the quality of entrepreneurial ideas. This huge increase in the entrepreneur base is an important reason for new dynamism of the economy.
When GoI opened space to the private sector, experts wondered if there would be any takers. The sector requires massive finance and hi-tech. But over 200 companies entered the sector, mostly startups financed by PE-VC. Similar stories can be told of many other sectors, including AI development.
When successful startups have good enough track records to launch IPOs, PE-VC investors can partially or fully exit at a huge profit. In some cases, these investors also make block sales to other foreign investors. Money from such exits is part of the reason for negative FDI. But from being a source of worry, we should celebrate it as a sign of booming, democratised capitalism. Global finance has found ways of financing entrepreneurs with good ideas that no government could have achieved.
For 2 yrs, India's IPO market has been red-hot, attracting massive investor interest, and record capital raising. In 2025 alone, companies across sectors lined up to sell shares to the public, with huge oversubscription and proceeds running into tens of billions of dollars.
Pipeline for 2026 remains substantial and diverse. Alongside traditional finance and tech names, new entrants are emerging. CleanMax Enviro Energy Solutions is launching a major RE IPO this month. XED Executive Development is set to launch the first IPO out of India's GIFT City financial hub in March. The markets themselves are experimenting with new technology, with firms introducing AI-driven platforms to streamline IPO execution.
The current boom may be excessive. Many recent IPOs are trading at or below issue price. India's IPO story is one of impressive scale and evolving maturity. But several startups will go bust, and the majority will never get near an IPO. The rise and fall of Byju's, once valued at $22 bn and now struggling to stay alive, shows that startups can be big frauds, too.
That is the price PE-VC investors are willing to pay in their search for a few big successes. This is what dynamic capitalism should look like.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Swaminathan S Anklesaria Aiyar
Consulting Editor at ET