India's gross FDI (equity) inflows accelerated sharply to $90.8 billion, equivalent to 2.3 per cent of GDP, on a 12-month trailing basis through January 2026 — a robust 13 per cent jump from $80.3 billion (2.1% of GDP) recorded in January 2025, according to a fresh report by Morgan Stanley released on Thursday, April 23. The data signals a sustained recovery in foreign investor confidence in the Indian economy, underpinned by strong macroeconomic fundamentals and deepening domestic demand.

Gross FDI Hits Three-Year High

Gross FDI excluding repatriation climbed to a three-year high of $36.3 billion in January 2026, surging an impressive 38.4 per cent year-on-year. This marks a steady recovery trend that has been building since January 2024, reflecting renewed appetite among global investors for Indian assets.

The Morgan Stanley report highlighted that the current FDI pipeline is being fed by a dual engine — greenfield investments, primarily concentrated in the IT and banking sectors, alongside brownfield projects that include higher foreign stakes in existing Indian ventures, joint ventures, and mergers and acquisitions particularly in the financial sector and startup ecosystem.

Services Sector Leads, Manufacturing Diversifies

The services sector continues to anchor India's FDI story, commanding a dominant 46 per cent share of total inflows. Meanwhile, manufacturing FDI, which accounts for roughly one-quarter of total flows, is broadening its base — diversifying into high-growth segments such as automobiles and electronics, supported by targeted government policy interventions including Production-Linked Incentive schemes.

This sectoral diversification is a qualitative improvement over earlier cycles when FDI was heavily concentrated in a handful of industries. The spread across autos, electronics, fintech, and IT reduces concentration risk and signals India's emergence as a multi-sector investment destination.

India's Global FDI Market Share Edges Up

India's share in global FDI nudged up to 2.4 per cent in 2025, slightly below its five-year average of 2.6 per cent, but the country's position within Asia showed stronger momentum. India's FDI share within Asia rose by 200 basis points to 6.4 per cent, surpassing its five-year Asian average of 5.7 per cent — a meaningful signal that India is gaining ground relative to regional peers including China, Vietnam, and Indonesia at a time of global supply chain realignment.

This comes amid a broader global trend of China+1 diversification strategies by multinational corporations, where India is increasingly positioned as a preferred alternative manufacturing and services hub. The geopolitical tailwinds from US-China trade tensions and post-pandemic supply chain restructuring continue to work in India's favour.

Net FDI Remains Near All-Time Low

Despite the headline optimism, net FDI — gross inflows minus repatriation and outward FDI — remains under severe pressure, tracking at a near all-time low of just $0.5 billion in January 2026 on a 12-month trailing basis. The drag is attributed to a rising incidence of profit repatriation by foreign companies and an uptick in outward FDI by Indian firms expanding globally.

This contradiction — strong gross inflows but weak net FDI — is a nuance that markets and policymakers cannot afford to ignore. From an external balance sheet perspective, net FDI is the more meaningful metric as it represents a stable, non-debt source of financing for India's current account deficit. A persistently low net FDI number raises questions about the durability of India's external financing comfort.

Morgan Stanley Outlook: Cautiously Optimistic

Morgan Stanley analysts described the improving gross FDI trajectory as encouraging at the margin, while flagging that flows are likely to remain lumpy and deal-driven rather than smooth and predictable. The brokerage expects the positive trend to sustain, contingent on both domestic growth conditions and global financial conditions remaining supportive.

The trend in net FDI remains crucial from an external balance sheet perspective, as FDI is typically a more stable source of financing for the current account, the Morgan Stanley report stated. Analysts added that the combination of greenfield and brownfield investment activity provides a balanced and broad-based foundation for the FDI recovery.

Looking ahead, all eyes will be on whether India's net FDI can recover meaningfully in FY2026-27 as the government pushes ahead with ease of doing business reforms, bilateral investment treaties, and sector-specific incentives. The trajectory of US Federal Reserve policy and global risk appetite will also play a pivotal role in determining the magnitude of future FDI flows into emerging markets including India.