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April 27, 2026 at 8:05 AM IST
Foreign investors are not misreading India; they are increasingly pricing it differently. When RBI Deputy Governor Poonam Gupta, speaking at the post monetary policy announcement briefing, outlined what would bring foreign portfolio investors back, the answer rested on valuations, currency, and growth, a framework that belongs to an earlier market.
Institutional investors who allocate to emerging markets are not the same as they were in 2019.
A Create Research-Amundi survey in December 2025 of 158 pension fund managers said 73% now use dynamic asset allocation, adjusting their mix as macro signals move, replacing fixed-weight models that sat unchanged through the post-2008 era.
India still pitches foreign capital on a stable macro story, rotating through budget cycles, Reserve Bank of India policy meetings, and annual roadshows to make the case for attractive valuations, a recovering currency, and a growth premium over peers.
Dynamic allocation runs on signals, and reprices continuously against macro shifts, governance changes, and opportunity depth. There is no time for pitches built around annual roadshow cycles. Pension plans and sovereign wealth funds running these frameworks reprice EM exposure as macro signals change, while testing governance, and the scale at which capital can be deployed.
India’s thin free float, promoter-heavy ownership, and an investable universe confined largely to financials and IT limit the scale at which capital can move. A fund committing ₹50 billion into India’s mid-cap space hits liquidity ceilings quickly.
The result is not an absence of foreign capital but its concentration in a narrow set of large, liquid names, leaving the rest of the market rationed by liquidity and governance screens.
The largest institutional investors globally now sit in the top five shareholders of 90% of S&P 500 companies, so governance shapes capital allocation input rather than a compliance function.
For example, banking fraud losses in India have crossed ₹1.9 trillion over three decades, from PNB’s ₹130–150 billion fraud in 2018 to the Yes Bank collapse that erased ₹850 billion in investor wealth. Governance failures have also surfaced at the highest levels, as in the ICICI Bank episode involving Chanda Kochhar, where conflict of interest concerns led to regulatory action and clawbacks.
Separately, the RBI's 2024-25 annual report documents that loan-related frauds account for 92% of total money lost across banks, and fraud value tripled in a single year to over ₹360 billion mainly due to fund diversion, fake loans, and wilful default.
The regulatory framework is still in transition.
The Securities Markets Code Bill, 2025, introduced in Lok Sabha in December and referred to a Parliamentary Standing Committee since, carries no legal force yet. The referral also surfaced a concern over exempting public sector companies from governance, disclosure, and takeover norms.
Allocators price that risk before they look at valuations.
The centre of gravity in institutional portfolios is shifting toward private markets. Private equity, infrastructure, and private credit are less sensitive to near-term macro volatility.
The Amundi-CREATE survey also noted that private equity financing is slowing globally, as longer holding periods and sluggish exits have forced institutions to be more selective and build fewer, deeper allocations.
India’s exit infrastructure for investors is constrained by IPO windows, limited secondary market depth, and uncertainty around deal structures.
Rupee volatility is a spread that fund managers calculate before they price any India opportunity. Smoother movement narrows that spread.
Global macro will eventually tilt in India’s favour, and passive flows will follow on cue. But active capital will not. It prices governance, scalability, and exit certainty ahead of growth. Until governance improves, free float deepens, enforcement catches up with reform, and exits widen, it will keep allocating elsewhere in emerging markets.
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