India's Shifting Financial Position: What It Means For Investors

India's financial position in the world underwent a change in the fourth quarter of 2024. Fresh figures published by RBI in a press release on March 28, 2025, show that the net foreign liabilities of the country—the gap between what India owes to foreign investors and what it has invested—increased by 11 billion dollars, to 364.5 billion dollars as of December 2024. This is because India's foreign assets declined by 40.1 billion dollars, while foreign holdings in India also declined by 29.1 billion dollars. Among the major reasons for the decline in foreign assets was a fall of 70.1 billion dollars in reserve assets—India's foreign currency holdings and gold savings.

But compared to December 2023, reserve assets were still 13.2 billion dollars higher. On the other hand, foreign investment in India eased, with fewer funds being invested by companies and investors in Indian companies and shares. Simultaneously, greater borrowing was undertaken through trade credit, loans, and deposits, thereby raising India's overall external debt. Consequently, the proportion of debt in India's total external liabilities went up to 53.6 per cent, from 52.9 per cent last quarter and 51.2 per cent twelve months ago. These trends have an impact on investors in several ways, from the value of money to the movement of the stock market and interest rates.

Impact on the Rupee and Prices

When debt rises and foreign assets fall, it will be deflationary for the rupee. When the rupee falls in value, foreign goods such as oil, machinery, or phones become expensive to buy, which leads to inflation. Increased prices for services and commodities have a tendency to reduce corporate profits and dilute the purchasing power of savings.

For investors, it would mean keeping a sharp watch on the movement of the rupee. If the rupee continues to go down, those companies that are import-dependent, such as auto and technology firms can witness the price of their inputs rising, affecting their share prices. Export-oriented businesses, however, stand to gain from a declining rupee as the price of their goods will decrease for overseas buyers.

What Slower Foreign Investments Mean for Stocks

Foreign investment in India also eased in the fourth quarter, that is, fewer foreign investors invested in Indian businesses and stocks. This could be due to altered global economic conditions, other better potential investments elsewhere, or doubt about the financial condition of India.

For Indian stock market investors, it can increase market volatility. Since fewer foreign investors are investing in stocks, the markets can turn more volatile with some stocks making rapid rises and falls. It is especially common in sectors such as banking, IT, and infrastructure, which are vulnerable to foreign funds. Investors must take care and spread their portfolios across various assets in order to avoid risks.

Increased Debt and Rising Interest Rates

With greater dependence on foreign borrowings, India's foreign debt has gone up. That is, in the coming years, India will have to pay a higher interest on its loans, if interest rates abroad remain high. If interest rates on borrowings rise, Indian companies depending on foreign lending, like, realty, infrastructure, and energy players, will also feel the pinch.

Investors would be wise to observe firms with a heavy foreign debt burden because their profitability would decrease with increased interest expenses. Lower-risk investments are firms that borrow less foreign funds.

Reserve Assets and Government Response

India's foreign reserve holdings dropped substantially in the quarter but were yet to remained at a level more than last year. These kinds of reserves help as they prevent the economy from facing an undesired shock ushered in by finances. Unless the declining trend continues, otherwise the Reserve Bank of India (RBI) may intervene to support the rupee along with controlling inflation with the use of foreign exchange reserves.

For investors, this implies that they should monitor RBI policies. When the central bank injects additional reserves to support the rupee, it can impact money flow in the economy. Investors who are considering fixed-income investments such as bonds need to observe changes in interest rates because RBI moves can affect returns.

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