Mumbai: A Reserve Bank of India article published on Wednesday stated that the recent rebound in foreign investment reflects renewed confidence in the Indian economy. The piece, titled State of the Economy and authored by central bank officials in the July bulletin, included the standard note that the opinions are those of the writers and not necessarily the RBI. Gross and net foreign direct investment rose in April-May 2026 compared with the prior year. Net foreign portfolio investment flows became positive in June and stayed positive in July, supported by policy measures and reduced geopolitical tensions. Net FDI reached $6.5 billion in April-May, up from $2.5 billion a year earlier. Indian equity markets advanced in June and early July amid improved sentiment after the US-Iran ceasefire, lower crude oil prices, and renewed foreign portfolio buying. Following the ceasefire’s end in West Asia on 8 July, markets pulled back as oil prices climbed and then traded in a narrow range. So far this financial year, foreign portfolio investors have sold $13.28 billion in equities net while buying $7.8 billion in debt. In June the RBI and the government expanded overseas investor access to government securities, eased rules for foreign portfolio investors, and supported tax relief on sovereign bonds. Non-resident Indians placed $17.41 billion into foreign currency non-resident deposits under a new incentive scheme, marking a strong start to efforts to attract dollars and support the rupee. Additional inflows included $1.97 billion via a swap window and $1.34 billion through external commercial borrowings. The RBI noted that recent steps on non-resident deposits, overseas borrowings, and external commercial borrowing, including a concessional swap facility, drove the rise in deposits. The US 10-year treasury yield stayed high and volatile in June, rising further in early July on tighter policy expectations before easing with soft inflation data. The US Dollar Index strengthened in June but gave back gains in July as inflation cooled. Foreign investors cut emerging market equity holdings in June, though debt inflows partly offset the sales. The global economy faces ongoing uncertainties from fragile geopolitics and supply chain strains, while the domestic economy has managed external risks through solid demand and strong industrial and services performance. Headline retail inflation edged higher in June, yet core inflation excluding precious metals stayed low. Liquidity conditions improved, aiding credit growth. India’s external sector remains stable with a better outlook helped by foreign investment inflows. Retail inflation reached 4.38 percent in June due to higher food and fuel prices, exceeding the RBI’s 4 percent target for the first time since January 2025. The report added that the world economy contends with uncertainty, supply disruptions, and fragmented trade ties.
