World Bank Stands Firm on India’s Economic Potential Amid Investor Withdrawals
As worries grow about foreign institutional investors (FIIs) pulling money out of the Indian market, the World Bank has expressed strong confidence in India’s economic future. At the Advantage Assam 2.0 Business Summit, Auguste Tano Kouame, the World Bank’s Country Director, downplayed concerns about short-term changes, labeling India as “the shining light in the world” and encouraging global investors to take advantage of the country’s growth opportunities.
Kouame stated, "We are not worried about India’s growth at the moment. We are very bullish about India and will remain so." He stressed that minor fluctuations in growth rates should not overshadow the country’s overall potential. "If you are considering investing, come and invest here. India’s growth makes it a prime investment spot."
Investor Worries Amid Market Declines
Kouame’s comments come during a challenging period for the Indian stock market. Recently, FIIs have been withdrawing from the market, causing a significant drop in major indices like the Sensex and Nifty. Since October 2024, foreign investors have sold nearly ₹2 lakh crore worth of shares, leading to a decline of more than 10% in the Sensex. Smaller indices, like the BSE Midcap and BSE Smallcap, have experienced even sharper declines of 19% and 21%, respectively.
The trend of selling has continued into 2025, with investors offloading about ₹1 lakh crore in shares in just 33 trading sessions up until February 14. This sell-off isn’t unique to India; most major emerging markets, except for Thailand, have also seen negative trends in FII investments. A report from Kotak Securities highlighted that India, alongside countries like Brazil and South Korea, faced outflows, while Thailand was the only one attracting investment.
Analysts believe this capital flight is due to changes in global economic conditions, particularly rising bond yields in the United States, which have made American assets more appealing. Vipul Bhowar from Waterfield Advisors noted that higher US bond yields are steering FIIs away from Indian and other emerging market stocks towards US equities, seen as safer investments.
Investor anxiety is also heightened by slowing corporate sales growth in India. In the December 2024 quarter, the total sales growth of Nifty50 companies was just 6.6% year-on-year, dropping from 9.2% in the same quarter last year. This slowdown has dampened investor enthusiasm for Indian stocks, contributing to the outflow of foreign capital.
Despite strong economic fundamentals in India, external pressures remain. Shrikant Chouhan, Head of Equity Research at Kotak Securities, pointed out that the market is currently wary due to various risks, including US tariffs on Indian exports, uncertainty in domestic growth, and disappointing corporate earnings in Q3 FY25. He expects that foreign portfolio investment (FPI) flows will likely remain unpredictable in the near future.
IMF Assesses India’s Slowdown as Temporary
India’s GDP growth has recently slowed to a near two-year low of 5.4% in the July-September quarter, primarily driven by weak performance in the manufacturing and mining sectors, along with subdued consumer spending. However, Gita Gopinath, Deputy Managing Director of the International Monetary Fund (IMF), stated that this slowdown is temporary. She projected that India could reach a GDP growth rate of 6.5% in this fiscal year.
"We see it as a temporary issue," Gopinath explained in a recent interview. “There have been some delays in launching public infrastructure projects, but we anticipate that will improve. We also continue to see strength in rural consumption." She remains optimistic about a recovery in India’s economic performance, affirming, "For the fiscal year, we expect growth to be at 6.5%."
