Volatile markets slow sovereign funds, global central banks investments in India during 2025

markets

• India's sovereign wealth fund assets dropped 2.3% to Rs 5.2 lakh crore in 2025
• Foreign central banks' equity assets dropped nearly 14 percent in 2025
• Foreign pension fund equity assets rose 14 percent to Rs 6.99 lakh crore in 2025

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The total assets of foreign government entities investing in India, including sovereign wealth funds and central banks, declined in 2025 amid heightened volatility in equity markets. The slowdown followed a phase of aggressive post-pandemic allocations, during which sovereign fund assets in India rose nearly 170 percent from 2020 levels, while holdings of foreign central banks increased about 60 percent over the same period.

Data compiled from the NSDL showed that sovereign wealth funds’ total assets fell 2.3 percent in 2025 — the first such decline since 2018 — to Rs 5.2 lakh crore. Equity assets declined 1.8 percent to Rs 5.01 lakh crore, marking the first fall since 2016. In contrast, overall foreign portfolio investor equity assets rose just 4.3 percent during the year to Rs 74.26 lakh crore, while combined equity and debt assets increased 4.8 percent to Rs 81.4 lakh crore.

Sovereign fund assets stood at around Rs 1.81 lakh crore at the start of 2020, rose beyond Rs 3 lakh crore in 2022, and crossed Rs 5 lakh crore in 2024. The sharp rise reflected India’s emergence as a preferred destination for foreign government funds, supported by strong growth prospects and improvements in ease of doing business. Major sovereign investors in Indian markets include funds from Singapore, the Abu Dhabi Investment Authority, the Kuwait Investment Authority, and the Norwegian pension fund.

Apart from sovereign wealth funds, interest from other foreign government institutions also weakened. Equity assets held by foreign central banks fell nearly 14 percent in 2025 — the first decline in three years — to Rs 1.61 lakh crore from Rs 1.88 lakh crore a year earlier.

Siddharth Bhamre, Head of Research at Asit C. Mehta Investment Intermediates, said assets of sovereign wealth funds and foreign central banks investing in India slowed during 2025 despite tax incentives and policy support by India. He said the trend broadly mirrors the behaviour of foreign institutional investors, as such funds face no obligation to invest in any single market and have multiple global options.

Bhamre attributed the slowdown largely to India’s relative market performance, noting that Indian equities were among the weaker-performing markets in 2025. He said investment decisions by sovereign funds and foreign central banks are influenced more by market outlook than incentives alone.

Indian markets saw sharp volatility during the year, with the Sensex and Nifty gaining about 10 percent each, while broader markets lagged. The BSE MidCap index rose 1.1 percent, while the SmallCap index declined 6.6 percent.

Markets in 2025 were constrained by elevated valuations, earnings downgrades, and weak earnings growth expectations for FY26. Sentiment was further weighed down by huge selling by foreign investor participation, as capital shifted toward markets offering more attractive opportunities. India’s limited exposure to the artificial intelligence theme, which supported several global markets during the second half of 2025, also impacted relative performance.

Meanwhile, foreign pension fund assets continued to rise, though at the slowest pace in three years. Equity assets held by foreign pension funds increased 14 percent during the year to Rs 6.99 lakh crore from Rs 6.14 lakh crore a year earlier.

Bhamre said foreign pension fund investments rose across both equity and debt, though equity remains the larger component. He noted that pension funds typically invest with a long-term horizon of around 10 years, but said these flows must also be viewed in a global context, including comparisons with growth and returns in other markets.

Under market regulator Sebi’s classification, foreign government entities investing in India include sovereign wealth funds, pension funds, central banks, and other funds where a foreign government owns more than 51 percent. Together, sovereign wealth funds, pension funds, and central banks currently hold assets worth about Rs 15.2 lakh crore, accounting for nearly 18.5 percent of total foreign portfolio investor assets under custody.