India likely to attract $20-25 billion FPI inflows in FY25, recent outflow temporary: Bank of Baroda

Foreign portfolio investment (FPI) inflows into India are projected to remain positive in FY25, with an expected inflow of USD 20-25 billion, according to a report by Bank of Baroda.

Despite recent outflows from the Indian markets, the report suggested that this is a temporary trend and a reversal in FPI flows will happen in FY 25 because of the strong macroeconomic fundamentals of the country.

The report said, "Given India's robust macro fundamentals, the recent bout of FPI outflows is likely to be only temporary. For FY25, we expect FPI inflows to be positive at USD 20-25bn in FY25".

It also noted that India's external and fiscal deficits are under control, while economic growth remains resilient. The Reserve Bank of India (RBI) has also built a substantial foreign exchange reserve of over USD 675 billion, which can be deployed strategically to support the domestic currency if needed.

The recent outflow of capital by foreign investors from emerging markets, including India, is attributed to a knee-jerk reaction to global developments.

These include the recalibration of expectations surrounding the U.S. Federal Reserve's rate cut cycle and political uncertainties following Donald Trump's re-election in the United States.

However, the report believes these outflows are likely to reverse as markets gain clarity on U.S. fiscal and monetary policies.

The report mentioned that India remains a favored destination for foreign investors, given its robust economic growth prospects. Even conservative estimates place India's GDP growth at above 7 per cent, making it one of the fastest-growing economies globally.

For investors seeking higher returns, the report said that emerging markets like India continue to be attractive over the long term.

"EM markets continue to be attractive for investors seeking higher returns. India's growth fundamentals remain on a strong footing with GDP growth expected to be above 7 pc even by a conservative estimate" the report stated.

The positive outlook for FPI inflows also bodes well for the Indian Rupee compared to dollar and financial markets. With its strong fundamentals and strategic policy framework, India is well-positioned to benefit from foreign investment in the coming fiscal year.