Here’s how Japan and US are paving way for foreign investors to invest in India

Synopsis: With​‍​‌‍​‍‌​‍​‌‍​‍‌ worldwide AI stocks becoming too crowded, India may capture the interest of investors with less expensive valuations and a rupee that might gain stability. According to HSBC, foreign inflows might increase in 2026 when changes in Japan’s interest rate and the US rate cut commence.

As​‍​‌‍​‍‌​‍​‌‍​‍‌ worldwide investors become less enthusiastic about the heavily AI-focused trades in US, Taiwan and Korea, India is slowly coming back into their view. Indian markets could see a comeback of foreign money in 2026, which may be quite unexpected given the cheaper valuations and a rupee that might stabilise in the near term.

Why Foreign Investors Can make a comeback?

One​‍​‌‍​‍‌​‍​‌‍​‍‌ possible reason for the inflow of foreign money into India is that multinational investors might decide to diversify their holdings beyond the US, Taiwan, and Korea markets, where the so-called “AI stocks” are very crowded. It is said that the market of big chip companies such as TSMC and SK Hynix has already been highly bought by the majority of people, and the investors now regard these stocks as being too full or overly priced. In such cases, they will automatically switch their focus from these heavily crowded markets to relatively uncrowded ones where their return could be higher, and India might be turning out to be one of such places.

HSBC points out that India has become more appealing after the last 18 months of price correction of shares and persistent undervaluation of the rupee. It is when stocks are trading slightly lower, and the rupee depreciates, that Indian shares become more attractive for investors affording to buy in dollars. From their point of view, investing in India is suddenly a “good deal” to strike.

The situation with interest rates is the next factor contributing to more foreign investments in India. The US has not yet seen the decision to reduce the interest rates, whereas India has already commenced the operation. If around the end of this year or at the early stage of 2026, the Federal Reserve eases its policy, the rupee may not depreciate that much. When the rupee gets stable, the foreign investors are not that worried about the loss that they might incur from currency fluctuations. That is when they will find it more comfortable to put their money into the Indian market. 

Additionally, Japan is one of the few major economies raising interest rates because its labour market is very strong. Higher rates can strengthen the yen, which may not be great for Japanese stocks but can push Japanese and Korean investors to look for better opportunities in other Asian markets. 

HSBC’s van der Linde says that if Japan keeps tightening while the US starts cutting rates, this mix could make India more attractive and bring more foreign money into the country as 2026 gets closer. For example, if Japanese savings earn only small returns at home but Indian markets offer better growth, Japanese investors may shift their money to India instead of keeping it in a stronger-yen, low-return environment.

In conclusion, the worldwide AI commerce is becoming more competitive, India seems to be getting less expensive, and the rupee might get more stable. These factors combined make India a very attractive destination for foreign investors. By the time 2026 comes around, India may be seeing a significant increase in foreign capital as international funds seek new opportunities away from the saturated AI ​‍​‌‍​‍‌​‍​‌‍​‍‌markets.

Written by Satyajeet Mukherjee

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