Heavy foreign selling has weighed on Indian equities through 2026, prompting policy steps from the Indian government to lure offshore investors back.
As global markets remain captivated by AI-driven rallies in the US and Asian tech hubs like South Korea, Taiwan and parts of China – India is an increasingly compelling value opportunity in the global mix, according to India Avenue Investment Management.
According to Mungunthan Siva, co-founder and chief investment officer, most investors have less than 0.5 per cent exposure to India – but by the time they increase allocations, much of the story may already be half played out.
“India’s growth is increasingly being driven by new sectors: digital infrastructure, formal-sector financials, manufacturing adjacencies, and premium consumption. While some legacy sectors that dominated past index performance are losing momentum,” he said.
“In a market where dispersion is widening and the opportunity set is shifting, broad exposure risks overweighting yesterday’s winners rather than tomorrow’s growth engines.”
However, recent commentary has raised questions about whether India’s growth story is becoming more complex. While it is often portrayed as broad-based and consumption-led, Siva argues the reality is more nuanced.
“The strongest drivers today are public investment, formal-sector corporates, and a handful of high-productivity industries such as manufacturing, construction, and digital services. Meanwhile, household consumption, job creation, and private-sector capex are recovering more slowly.
“This creates a headline-reality gap: GDP growth looks impressive at 7.8 per cent for FY26, but the composition of that growth is uneven, and that nuance is frequently missed in global commentary.”
Siva says the most misunderstood aspect is that India is undergoing a structural transition from an informal, consumption-heavy economy to a more formal, investment-driven one.
“Transitions are inherently messy, and the data reflects that. Capital inflows have been strong in the past (excluding the last two years) and are in response to long-term reform credibility and corporate balance-sheet strength, not a uniform economic boom.”
The opportunity for investors, he argues, lies in recognising this asymmetry. India’s growth is real and durable, but not yet broad-based – and understanding where strength is concentrated is key to allocating capital effectively.
“This is why we think investing in India should be an active management story,” he said.
Despite this, foreign investors have sold Indian equities worth $29.5 billion in the first five months of 2026, exceeding the US$18.9 billion sold in all of last year, driven by concerns around oil and AI.
In response, the Indian government moved to scrap capital gains tax on foreign portfolios in a bid to attract capital inflows and support the rupee.
“India is absolutely competing for the same pools of global capital that are flowing into the US, the Middle East, and Southeast Asia. But it’s competing on a different value proposition,” Siva said.
Siva also notes that India’s ambition to become a global AI hub is real, but infrastructure remains the key constraint.
“India’s AI ambition is not constrained by ideas, talent, or capital; it is constrained by the pace at which the country can build the hard infrastructure that AI runs on. Fix the energy bottleneck, streamline approvals, and the rest of the ecosystem will scale naturally.”
A major signal of confidence in this infrastructure buildout came from recent investment announcements, including Blackstone-backed AirTrunk, which plans to invest US$30 billion in India by 2030 to expand digital infrastructure supporting cloud and AI growth.
Blackstone is among the largest foreign investors in India, while Australian data centre operator AirTrunk is positioning the country as a core pillar of its global expansion strategy. In a statement released on 5 June, the company said its proposed development pipeline across multiple states and union territories would support India’s ambition to become a global destination for AI and cloud infrastructure, while also generating economic activity, jobs, and ecosystem growth.
“Capital is mobile, and India is creating the conditions for it to thrive,” AirTrunk founder and CEO Robin Khuda said at the time.
“India is taking a top-down approach to AI with clear government-led initiatives, a world-class talent pool and massive availability of renewable energy … [there is] a clear message that India is open for investment and determined to compete for the next generation of AI and cloud infrastructure that will transform India’s industries and economy for generations to come.”
Siva said commitments like AirTrunk’s signal a shift in how global investors view India.
“Investors don’t commit that scale of capital unless they have conviction in the stability of policy, the depth of demand, and the credibility of the digital and energy transition underway. What stands out is that these are not portfolio flows; they are multi-year, high-capex commitments that require confidence in execution, regulatory clarity, and long-term returns.”
He added that India is increasingly seen not just as a high-growth market, but as a strategic node in global digital and supply-chain infrastructure.
“Data centres, renewables, logistics, and manufacturing are all attracting large-scale commitments because investors believe India can deliver both scale and reliability. In other words, the conviction is not just about India’s growth rate. It’s about India’s ability to convert that growth into investable, globally competitive infrastructure. That shift in perception is what’s driving the size and quality of capital coming in today.”
Recent major investment commitments in India include:
- Amazon: US$26bn for data centres, logistics and e-commerce infrastructure
- Google: US$10bn focused on cloud, AI infrastructure and equity stakes in Indian tech companies
- Microsoft: US$4bn for AI and cloud infrastructure
- Foxconn: US$20bn for semiconductor and electronics manufacturing
“Others include Tesla supply chain, Apple ecosystem, Brookfield (renewables, data centres, infrastructure) and Blackstone. Additionally, GQG has been investing in Indian equities, pouring billions into companies which are growth oriented,” Siva said.
Economic outlook
India is currently the world’s fifth-largest economy, with nominal GDP projected at US$4.15 trillion.
According to the OECD June 2026 Economic Outlook, India is expected to remain the fastest-growing major economy. However, growth is projected to moderate from 7.6 per cent in FY2025-26 to 6.3 per cent in 2026–27 and 6.4 per cent in 2027-28, reflecting higher energy prices and rationing measures.
“India’s headline GDP numbers tell a compelling story, but they don’t fully capture the underlying tensions in the economy. Growth remains strong, yet productivity gains are uneven, job creation is concentrated in a few sectors, and private-sector capex is still lagging. These are not contradictions, just they’re features of an economy transitioning from an informal, consumption-heavy model to a more formal, capital-intensive one. In that context, strong GDP growth can coexist with pockets of fragility, and it’s important to recognise both.”
Meanwhile, the Reserve Bank of India recently held interest rates at 5.5 per cent and raised its inflation projection for the financial year ending March 2027 by 50 basis points to 5.1 per cent.
“A small rate increase is anticipated in India in mid-2026, undone in early 2027, with rates remaining close to neutral levels,” the OECD said.
