India’s foreign direct investment (FDI) outlook remains mixed, with strong gross inflows offset by persistently weak net inflows, according to a report by Morgan Stanley.
The report noted that gross FDI is likely to remain well supported, driven by both greenfield and brownfield investments. However, net FDI is expected to stay subdued in the near term due to higher repatriation of capital and rising outward investments by Indian firms.
“The outlook for gross FDI remains constructive, even as net FDI may remain subdued in the near term,” the report said.
Gross FDI refers to total foreign investment entering a country, while net FDI is the residual amount after accounting for repatriation of profits and capital, as well as outward investments by domestic companies.
According to the report, gross FDI equity inflows into India rose to $90.8 billion on a 12-month trailing basis in January 2026, equivalent to 2.3% of GDP. This represents a 13% year-on-year increase from $80.3 billion in January 2025. Gross FDI excluding repatriation also climbed to a three-year high of $36.3 billion, up 38.4% year-on-year.
In contrast, net FDI remained near historic lows at just $0.5 billion, weighed down by elevated capital repatriation and a sharp rise in outward investment. Repatriation has stayed above $50 billion for the second consecutive year, while outward FDI has surged to $35.8 billion—more than 2.5 times higher over the past two years.
The report highlighted that while headline inflows remain strong, net FDI trends are more critical from an external stability perspective, as they represent a more durable source of financing for India’s current account. Sustained weakness in net inflows, it warned, could increase dependence on more volatile portfolio flows, with potential implications for currency stability and broader financial market conditions.
Sectorally, services continued to dominate FDI inflows, accounting for 46% of the total. Manufacturing, which makes up about a quarter of inflows, has seen diversification into segments such as automobiles and electronics, supported by policy incentives.
On the global front, FDI flows reached $1.6 trillion in 2025, up 14% year-on-year. However, inflows to Asia declined 2.5% to $614 billion. India bucked this trend, with FDI excluding repatriation rising 44% year-on-year, lifting its global share to a three-year high of 2.4%.
Looking ahead, the report said net FDI flows are likely to remain uneven and driven by deal activity, with their trajectory closely tied to domestic growth conditions, global economic trends, and financial market dynamics.