Inside India newsletter: India’s investment appeal dims as firms and funds pivot to the U.S.

Hello, this is Priyanka Salve, writing to you from Singapore.

Welcome to the latest edition of "Inside India" — your one-stop destination for stories and developments from the world's fastest-growing large economy.

As global capital races toward America on AI boom and industrial revival, India's once-compelling investment story is facing uncomfortable questions. This week, I unpack how capital outflows risk upending India's ambition to become an economic powerhouse.

Read on!

Any thoughts on today's newsletter? Share them with the team.

A booming tech and artificial intelligence sector and the "America First" policy push are bringing global investors and firms to the U.S., including Indian businesses, dimming the appeal of the world's fastest-growing economy and its consumption-led narrative.

Several Indian conglomerates have announced a fresh round of investments in the U.S. this year, even as policymakers back home express concerns over weak private sector investment domestically.

Earlier this month, India's chief economic advisor reportedly criticized private firms for failing to step up capital expenditure despite strong profitability.

Indian corporates instead are deploying capital in the U.S.

The country's largest business group, Reliance, is investing in the U.S. to build what President Donald Trump has said will be the "first refinery in 50 years." Indian billionaire Gautam Adani is reportedly planning to invest $10 billion in the U.S. to create 15,000 jobs.

On May 6, the U.S. Embassy announced that Indian companies plan to invest over $20 billion in the U.S. across industries, which is expected to create thousands of jobs while strengthening supply chains and expanding U.S. production capacity.

Experts say the U.S. is increasingly attracting capital because it combines deep consumer markets, technological leadership in artificial intelligence, and incentives for local manufacturing, advantages that are harder for India to match. While India is the fastest-growing consumer market in the world, consumption spending is limited by its low per capita income of under $3,000.

"The U.S. is the market Indian firms cannot ignore," said Alexandra Hermann Prasad, lead economist at Oxford Economics, adding that "U.S. footprint can also be a hedge against future tariff risk, localization requirements, and 'Buy American' procurement preferences."

But this trend raises concerns for India's investment outlook at a time when foreign capital flows are already weakening, and the rupee has slid to record lows against the dollar.

While India attracted foreign direct investment of $90.8 billion on a 12-month trailing basis ending January 2026, up 13% year on year, they were eclipsed by higher repatriation of capital by foreign firms and a rise in overseas investment by Indian companies, taking net FDI to a "near all-time low," according to a Morgan Stanley report last month.

In a double whammy for India, while repatriation was more than $50 billion for a second consecutive year, overseas investment by Indian companies rose to $35.8 billion, rising 2.6 times over two years.

A rise in repatriation signals that multinational firms are extracting profits rather than expanding capacity, experts said.

Instead of profit reinvesting, global firms are "harvesting returns" from India to finance investments elsewhere, said Hanna Luchnikava-Schorsch, head of Asia-Pacific Economics at S&P Global Market Intelligence. Capital is moving back toward developed markets such as the U.S., she added.

For an emerging economy that promises to be the best long-term play, this shift signals a disconnect.

P. Krishnan, chief investment officer and fund manager at portfolio management firm Spark Asia Impact Managers, points out that more than half the capital raised by initial public offerings in India last year was to provide an exit to existing investors, and not for reinvestment in businesses.

"Everybody says that a 20-year outlook on India is way better than the two-year outlook," says Krishnan, adding that this should have resulted in "capital raising" and not more offers for sales to facilitate exits for investors.

While the slowing growth of businesses in India is a key concern for foreign investors, experts said that a global shift in capital is underway, and it does not favor India.

Global capital is moving to artificial intelligence, advanced manufacturing, and high-end tech ecosystems, to markets like the U.S., Korea, and Taiwan.

"The U.S. is doing everything right for itself," which is reflected in the growing number of trillion-dollar market cap companies that are building the next global trends in the AI and tech space, Rajat Rajgarhia, chief executive of institutional equities at Motilal Oswal Financial Services, told CNBC.

India, in contrast, is still in the process of building scale in these sectors.

To attract global capital, "as an economy, India needs to reinvent," by building next-generation businesses at a global scale, said Rajgarhia on the sidelines of Motilal Oswal Conference 2026.

Until that happens, global investor sentiment on India is likely to remain bearish, experts said, adding that the country needs to accelerate the development of advanced manufacturing ecosystems, tech plays and strengthen reinvestment incentives to get back in the race.

After U.S. SEC, Treasury and Justice Department offer billionaire Gautam Adani legal relief
The legal woes of Indian billionaire Gautam Adani in the U.S. are nearing an end as authorities move to close investigations on charges of bribery, fraud, and buying Iranian-sanctioned energy against the businessman and his firm.

Iran war fallout forces Air India to cancel 27% of international flights
Singapore Airlines-backed Air India will substantially cut international flights during the peak June to August travel period, as the Iran war-led airspace restrictions and record-high jet fuel prices weigh on the carrier's operational viability.

Indian stock exchange CEO says domestic investors saved markets from 'freefall'
Domestic investors played a crucial role in helping the Indian equity market avoid a "freefall" after foreign investors sold billions worth of equities last year, the chief executive of the country's oldest stock market told CNBC's "Squawk Box Asia" on Tuesday.

Coming up

May 21: India HSBC composite flash PMI for May.

May 23-26: U.S. Secretary of State Marco Rubio to visit India.