Financial services companies attracted the lion’s share of foreign capital flows into India in recent years, two Union government officials said citing finance ministry data.
Investments by sovereign wealth funds in India’s financial services sector climbed from ₹2,688 crore in 2020-21 to ₹16,228 crore in 2024-25, according to the officials, who requested anonymity. Investments by global pension funds, however, dropped from ₹16,627 crore in 2020-21 to ₹12,626 crore in 2024-25.
In India’s capital goods sector, net foreign portfolio investments (FPI) by sovereign wealth funds jumped from ₹502 crore in 2020-21 to ₹3,626 crore in 2024-25, with a steady climb each year, the officials said. Pension funds mirrored this upbeat momentum, increasing investments from ₹1,497 crore in 2020-21 to ₹5,647 crore in 2024-25.
The overall surge in investments by the specialised funds reflect global investors’ growing conviction in India’s industrial and infrastructure drive, bolstered by reforms, robust demand, and a steady improvement in the ease of doing business, one of the two officials said.
“Pension and sovereign wealth funds, traditionally cautious, are placing larger, more consistent bets on India’s capital goods sector. That reflects confidence not only in the country’s demand story but also in the predictability of its policy environment,” this official added.
Abu Dhabi and Singapore sovereign funds have been increasing their bets in India’s services and healthcare sectors, while Canadian pension funds are deepening their hold on domestic highways and power assets. Singapore’s sovereign wealth fund Temasek Holdings is backing India’s digitization and consumer growth as part of a $10 billion plan.
The second official mentioned above attributed the rise in investments by global sovereign and pension funds to proactive government policy, including broadening of foreign direct investment limits, simplified regulatory frameworks, and targeted tax exemptions for long-term foreign funds. “Global investors see India as one of the most-credible long-term bets,” the official said.
A spokesperson for the Union finance ministry didn’t respond to emailed queries.
Key Takeaways
- Sovereign wealth and pension funds are emerging as stable anchors for India, steadily increasing investments in finance, manufacturing, infrastructure and other key sectors despite global uncertainty.
- Rising allocations reflect trust in India’s reforms, demand story, and improving ease of doing business, with global giants from Abu Dhabi, Singapore, and Canada deepening their presence.
- While net FDI inflows have slowed sharply, the steady, patient capital from these funds is helping offset volatility in foreign portfolio flows, reinforcing India’s long-term economic credibility.
Growing confidence
Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, said sovereign wealth funds and global pension funds channeling their patient, long-term capital into India underscored confidence in the economy’s fundamentals, moderating inflation, steady growth, and deepening financial markets.
“Their growing presence in financial services and capital goods signals that global investors see India as a structural story, not just a cyclical trade. Unlike short-term portfolio flows, these investments add depth and stability to markets while reinforcing credibility,” he said.
“That said, global uncertainties—tariff shocks, geopolitical risks, rupee weakness, and uneven FPI flows—continue to weigh on sentiment despite India’s rating upgrade,” Srinivasan added. “In this environment, the steady participation of sovereign wealth and pension funds acts as an important anchor, underlining that India’s long-term prospects remain intact even as short-term volatility plays out.”
In recent years, Abu Dhabi Investment Authority has backed Lenskart and Reliance Retail from its $4-5 billion India fund; Singapore’s GIC has invested $300 million in the domestic hospitality sector; and in March, Temasek acquired a 10% stake in snacking and sweets company Haldiram Snacks Food Pvt. Ltd for ₹8,500 crore.
Canada Pension Plan Investment Board’s India portfolio climbed to a record C$30 billion (about $22.7 billion) in net assets in 2024-25. CPPIB and Ontario Teachers’ Pension Plan Board have also invested in the National Highways Infrastructure Trust.
Turbulence ahead
India attracted foreign direct investment worth $81.04 billion in 2024-25, a 14% jump from the year before, according to official data. However, after accounting for money repatriated out of India and all outward FDI, net FDI was $350 million, a 96% drop from 2023-24.
That said, FDI in manufacturing rose 18% to $19.04 billion in 2024-25 from $16.12 billion in the previous year, accounting for about 23.5% of the total foreign inflows. The services sector accounted for 19% of the FDI inflows.
Over a longer period, India attracted $748.78 billion in cumulative FDI inflows between 2013-14 and 2024-25, marking a 143% surge over the preceding eleven-year period (2003-14), when foreign investment stood at $308.38 billion, government data show.
However, according to some analysts, slow global growth, geopolitical disruptions, and the US’s high tariffs on Indian goods could temper the country’s manufacturing momentum built over the years.
In a recent report, Moody’s Analytics said US tariffs of up to 50% on Indian goods would weigh on India’s economy but would not crush it.
Rating agency Crisil Ltd expects India’s manufacturing sector to grow at 9% annually between FY25 and FY31, on average, up from 6% in the pre-pandemic decade.
Manufacturing’s share in India’s GDP is projected to rise to 20% by FY31 from 17% in FY25, supported by investments and efficiency gains, with services remaining the primary growth engine, Crisil said in its India Outlook report for FY26.
Meanwhile, as Mint reported on 9 August, India is working to soften the blow of the US tariffs with reforms aimed at fortifying the country’s manufacturing and export base, and improving the ease of doing business to keep foreign investors coming.