Influence of Foreign Direct Investment (FDI) on India’s Financial Markets: Trends, Impact, and Future Outlook
Jay Prakash Verma1, Sanskriti Wadhwa2, Tushar Bhiwaji Gahane3
1Dr. Jay Prakash Verma, Associate Professor, Department of Management, IIEBM Indus Business School, Pune (Maharashtra), India.
2Sanskriti Wadhwa, (PGDM) Department of Management, IIEBM Indus Business School, Pune (Maharashtra), India.
3Tushar Bhiwaji Gahane, (PGDM) Department of Management, IIEBM Indus Business School, Pune (Maharashtra), India.
Manuscript received on 29 April 2025 | First Revised Manuscript received on 03 June 2025 | Second Revised Manuscript received on 21 October 2025 | Manuscript Accepted on 15 November 2025 | Manuscript published on 30 November 2025 | PP: 37-44 | Volume-5 Issue-2, November 2025 | Retrieval Number: 100.1/ijef.A262405010525 | DOI: 10.54105/ijef.A2624.05021125
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Abstract: Foreign Direct Investment (FDI) has emerged as a crucial driver of economic growth and financial market expansion in India. As a rapidly developing economy, India has consistently attracted substantial foreign investments, particularly after the economic liberalization of 1991. This research examines the influence of Foreign Direct Investment (FDI) on India’s financial markets, analysing its impact on GDP growth, stock market performance, sectoral distribution, and overall economic stability. The study highlights key trends, showing that FDI inflows peaked at USD 84,835 million in 2021-22, with a cumulative inflow surpassing USD 70,000 million since 2000. Major contributing sectors include services, computer software & hardware, trading, and infrastructure, while leading investor countries such as Mauritius, Singapore, and the United States continue to dominate. The correlation analysis between FDI, GDP, Nifty, and Sensex indicates a strong positive relationship, reinforcing FDI’s role in enhancing financial market efficiency and investor confidence. Despite these benefits, the research identifies significant challenges, including regulatory hurdles, policy uncertainty, exchange rate fluctuations, and sectoral imbalances. The study suggests that India’s over-reliance on a few investor countries and specific industries could pose risks to sustained investment growth. To ensure long-term economic stability, the research recommends policy enhancements, diversified investment sources, and sectoral reforms to attract high-quality foreign direct investment (FDI). By fostering a stable and transparent investment climate, India can further integrate into global financial networks, solidifying its position as a preferred FDI destination. This research contributes to the broader discourse on the role of FDI in emerging economies, offering insights for policymakers, investors, and financial analysts seeking to optimise India’s investment potential.
Keywords: Foreign Direct Investment, India’s Economic Growth, FDI Inflows Trends
Scope of the Article: Finance