Vikram Sahu, India CEO and Country Executive of Bank of America, hosted the bank’s investor conference in India, with foreign institutional investor (FII) participation rising 20% from the previous year. According to Sahu, despite short-term challenges, interest in India remains undiminished.
Expectations from Policymakers
India is navigating a complex and evolving environment shaped by both domestic pressures and external challenges. Border tensions, shifting trade dynamics, and the conflict in West Asia have had cascading impacts on the Indian economy. However, the government has responded with notable resilience and policy agility. Sahu highlighted the administration's pragmatic and responsive approach, noting that policymakers have consistently sought to maintain momentum and identify opportunities even amid volatility. This is reflected in steady trade engagements, including the framework agreement with the US, and a continued reform agenda. Reform has not been limited to headline initiatives; there has been a sustained effort to streamline processes and reduce 'regulatory cholesterol', improving the ease of doing business. Based on this track record, Sahu expects continuity in approach with a clear focus on maintaining stability while advancing long-term growth priorities.
Attracting Foreign Capital
When asked if India should take steps like in 2013 to attract foreign capital, such as underwriting FX risk, Sahu avoided prescribing specific policy tools. He noted that foreign direct investment (FDI) has not kept pace with India's ambitions, but the government is aware and focused on improving the operating environment. Ultimately, capital responds to fundamentals. As regulatory friction is reduced and ease of doing business improves, foreign investment will follow in a more durable and sustained manner.
What Ails Foreign Investment?
FII participation is currently at its lowest level in over a decade. The initial driver was valuation: about 18 months ago, India was trading at a significant premium to historical averages, setting a high bar for expectations. Since then, external uncertainties such as trade negotiations with the US, the West Asia conflict impacting energy dynamics, and the rapid rise of AI have added to the macro backdrop. When elevated valuations combine with uncertainty, investors naturally step back, recalibrate, and wait for more attractive entry points. Sahu emphasized that this is a cycle seen before, which tends to correct itself as valuations and expectations realign.
Current State for FIIs
Trade-related concerns have moderated, with several agreements announced, including the framework with the US, and trade flows remain resilient. West Asia continues to be a source of uncertainty. A swift resolution would remove a meaningful overhang, while a prolonged situation would remain a headwind, though not unique to India. Encouragingly, investor behavior is shifting. Participation at Bank of America's flagship 2026 India conference increased by 30% this year, indicating a growing willingness to evaluate whether current levels offer a more compelling entry point than 18 to 24 months ago.
Corporate Investors
Corporate interest remains strong and unchanged in conviction. Strategic investors take a long-term view, and India stands out in an uncertain global environment. India offers a compelling combination of scale, sustained growth at around 6.5% compared to a global average of 3.1%, and a credible governance framework. Very few markets bring together all three in a durable and investable manner.
Opportunities as a Banker
The opportunity set is broad and tangible. Manufacturing accounts for about 15% of GDP, against an aspiration of 25%. Some view this gap as a constraint, but Sahu sees it as clear runway for growth. Momentum on the ground is strong. Electronics is a case in point: in under four years, India has emerged as a significant hub for iPhone production, with operating efficiency that stands up well against global benchmarks, including China. That trajectory speaks to what is possible when policy intent and execution come together.
Valuations for FIIs
FIIs are returning selectively, focusing on companies with durable competitive advantages, consistent earnings visibility, and strong governance. For a broader 'buy India' shift, two factors matter: greater clarity on West Asia and a definitive end to the earnings downgrade cycle. We are moving closer on the latter but not fully through yet. Capital markets activity remains healthy, with IPO demand supported by domestic flows and FII participation, continuing for companies with strong fundamentals.
Domestic Investors
Domestic participation has been a defining feature of the market. The pace of new account openings has moderated, a natural normalization after expansion from roughly 50 million to over 200 million accounts. The key variable to watch is the sustainability of systematic investment plan (SIP) flows, which will indicate how consistently domestic investors can provide stability through cycles.
Bank of America's Investments in India
Bank of America continues to invest across its India franchise, spanning fixed income, equities, and the broader banking platform. This includes continued investment in talent, balance sheet capacity, and on-the-ground presence. At the investor day last November, international markets were identified as a key growth priority, with India firmly positioned as a strategic focus.
Concerns About Middle East Tensions
The concern is understandable given India's dependency on energy imports. Any disruption to supply or pricing introduces caution. Developments in West Asia remain an important variable for markets. Greater stability in the region would remove a meaningful layer of uncertainty.
Key Takeaways
Three things stand out. First, India is a strategic priority for Bank of America because it is increasingly central to clients' global strategies. Second, despite volatility, the economy has shown resilience, supported by sustained infrastructure investment and a responsive policy framework. Third, while valuations move through cycles, underlying client interest in India remains strong and consistent.
