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India cautiously reopened the door to Chinese-linked investment after years of tight restrictions. Today, we discuss what this means for India’s economy and the future of India-China relations.
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Macro
AI will likely be slow in disrupting IT given coding is just 30 percent of the sector stack. The remaining, which includes testing, deployment, and architecture, still requires human touch and judgement. Legacy systems, governance needs and integration challenges could also slow the change.
The past 10 trading sessions have seen $7.6 billion (₹695 billion) in local bonds be bought by the RBI.The central bank may be trying to keep a lid on local borrowing costs amid external shockswhile easing the liquidity being drained out of the system by recent currency interventions.
Equities
Foreign banks are finding India's regulatory environment difficult to manage. Japanese banks have been the only ones to succeed by choosing to partner as JVs or take hands off approaches to investments. Scaling up state-bank and private lenders is necessary to raise credit to 130 percent of GDP from the current, measly 56 percent.
The Nifty avoided blowing through its 100-day moving average. The last time it declined that much was COVID, when extreme panic set in. Generally, bounces off of the line cause a 5-10 percent upturn.
Investors remain wary of SMID caps due to higher valuations. Even with the 8 percent Nifty decline this year, smaller companies are still overvalued given the risks present in the market.
Alts
Space startups are creating reusable cryogenic engines and orbital rockets. An unprecedented opening that allows startups private access to rocket fuel and testing facilities at ISRO has been a gamechanger. There currently is a $9 billion (₹823.5 billion) global backlog for low-earth orbit satellite launches, though the India total is unknown.
Policy
India and Sri Lanka have been bracing for conflict on their shores since last week. After the US attack on an Iranian ship off the countries’ coasts, both nations have been prepared for more disruptions to their shipping lanes. US targets are likely ‘shadow fleets’ carrying Iranian oil. Sri Lanka has intervened to move one Iranian ship (non-military) further away from shipping routes.
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India Warms Up to Chinese Investment
India cautiously reopened the door to Chinese-linked investment after years of tight restrictions. Modi’s cabinet approved changes to rules introduced in 2020 that had effectively blocked most investments from China and other neighboring countries sharing land borders with India. The original restrictions were imposed shortly after a deadly border clash between Indian and Chinese troops in the Himalayas. Since then, nearly all investments involving Chinese capital required case-by-case government approval, creating uncertainty for global funds and corporate investors with Chinese partners.
Under the revised framework, two adjustments are expected. First, investments will receive automatic approval if Chinese ownership remains below 10 percent and the investor does not exercise control. This change is particularly significant for international PE and VC funds that have Chinese limited partners but are not themselves Chinese-controlled entities. Many of these funds had paused investments in India or created complicated structures to avoid regulatory scrutiny.
Second, other investments that still involve Chinese ownership will continue to require government approval. However, authorities are expected to accelerate the review process for projects in strategic manufacturing sectors such as electronics, semiconductors, and banking. In those areas, approvals may be processed within roughly 60 days, reducing delays that have discouraged investors in recent years.
The biggest beneficiaries may be cross-border investment funds. According to legal experts, Asia-focused funds frequently include Chinese institutional investors among their limited partners, even when the fund managers themselves are based elsewhere. The previous rules created ambiguity over whether such capital could flow into India without triggering national security reviews. The policy shift could also revive strategic JVs and acquisitions in technology and manufacturing where India is seeking both capital and technical know-how. Policymakers have increasingly emphasized the need to expand domestic manufacturing capacity, particularly in electronics and semiconductor supply chains where Chinese companies still hold significant expertise.
The changes do not encompass a full reopening: sensitive sectors remain tightly monitored and many industries such as e-commerce and healthcare are not included in the fast-track framework. Some legal experts had hoped India would raise the automatic approval threshold much higher, potentially to 49 percent ownership in non-sensitive industries.
Even with these limitations, the adjustment reflects a pragmatic shift in India’s economic strategy. Heightened global trade tensions — particularly those stemming from the policies of Trump — have pushed India to become more receptive to foreign capital and technology as it tries to strengthen its manufacturing base.
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Written by Yash Tibrewal. Edited by Shreyas Sinha.
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Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.