Strong domestic demand, improving foreign investor sentiment and resilient financial markets suggest India remains well positioned for long-term growth.
Our Bureau
New Delhi / Mumbai
India’s economy is showing encouraging signs of strength even as global uncertainties continue to cloud the investment landscape. After nearly two years of sustained foreign capital outflows, there are early indications that overseas investors are beginning to reassess India positively. At the same time, strong domestic consumption, healthy tax collections, robust credit growth and continued interest in Indian government bonds point to an economy that remains fundamentally resilient despite geopolitical tensions and inflationary pressures.
While risks from volatile oil prices, the Iran situation and global interest rates cannot be ignored, market experts believe India’s long-term growth story remains intact. The discussions at the ninth edition of the Motilal Oswal Business Impact Conference (MOBIC) in Mumbai reflected cautious optimism rather than exuberance, suggesting that India’s economic fundamentals continue to inspire confidence among investors.
Foreign investor sentiment
One of the most significant positive developments is the apparent turnaround in foreign investor sentiment.
According to Motilal Oswal Financial Services Chairman Raamdeo Agrawal, foreign portfolio investors (FPIs), who had remained persistent sellers over the past two years, are beginning to return to Indian markets. He noted that substantial foreign capital had already exited India during this period, driven by relatively expensive market valuations, stronger returns in competing global markets and the absence of an artificial intelligence-led investment boom comparable to that seen in the United States.
However, Agrawal believes the selling may have gone too far.
He observed that during the past week there had been signs of a reversal, with foreign institutional investors once again looking at India favourably. His assessment that Indian equities are “probably oversold” suggests valuations have become more attractive for overseas investors seeking long-term opportunities.
Domestic economy
Even more important than foreign capital is the continued strength of India’s domestic economy.
Agrawal painted a positive picture of economic activity, saying there was a clear pickup across sectors. Several key indicators support this assessment.
Automobile sales continue to remain strong, reflecting resilient consumer demand despite higher borrowing costs. Healthy Goods and Services Tax (GST) collections indicate that business activity and consumption remain robust. Meanwhile, credit growth has accelerated sharply, rising to nearly 18 per cent compared to around 9-10 per cent last year.
Strong bank lending typically signals increased business investment, higher consumer spending and expanding economic activity. Credit growth also reflects confidence among both lenders and borrowers about future prospects.
Bond market confidence
Another encouraging trend is the growing international interest in India’s government bond market.
India’s inclusion in major global bond indices has already begun attracting stable foreign investment into government securities. Although Bloomberg has temporarily delayed including Indian Government Securities in its Global Aggregate Bond Index, market experts insist this should not be interpreted as a negative verdict on India’s sovereign debt.
Agrawal explained that benchmark providers are adopting a cautious operational approach to ensure market systems function smoothly before full inclusion.
Ashish Shanker, Managing Director and CEO of Motilal Oswal Private Wealth, echoed this view, arguing that the delay reflects broader global market dynamics rather than concerns specific to India.
Despite the positive outlook, experts acknowledge that inflation continues to limit the scope for aggressive monetary easing.
Shanker does not expect Indian interest rates to decline sharply in the near future, pointing to persistent global and domestic inflationary pressures. Imported inflation, particularly through higher commodity and energy prices, remains a significant concern.
Similarly, Agrawal believes the Reserve Bank of India is likely to maintain a policy approach broadly aligned with the US Federal Reserve, which has kept interest rates on hold.
The biggest uncertainty facing India remains the global environment.
Geopolitical tensions, especially developments involving Iran, continue to influence international oil prices. As one of the world’s largest crude oil importers, India remains vulnerable to sustained increases in energy costs, which affect inflation, the current account deficit and the value of the rupee.
Global financial conditions also remain uncertain.
Shanker pointed to increasing leverage among major US companies, particularly amid massive investments in artificial intelligence infrastructure and data centres. Such developments could keep global bond yields elevated, reducing the pace at which interest rates decline internationally.
Long-term fundamentals
The overall message emerging from MOBIC 2026 is one of cautious confidence.
India is benefiting from resilient domestic consumption, accelerating credit growth, healthy tax revenues and growing international interest in both equity and debt markets. While geopolitical uncertainty and inflation continue to create headwinds, they have not fundamentally weakened the country’s growth trajectory.
The early return of foreign investors after prolonged selling could mark an important turning point if supported by stable global conditions. At the same time, structural reforms, expanding financial markets and rising domestic demand continue to strengthen India’s long-term investment appeal. For policymakers, the challenge will be maintaining macroeconomic stability while supporting growth. For investors, the current environment appears to offer opportunities grounded not in short-term optimism but in the enduring strength of India’s economic fundamentals.