Prof. Virender Koundal
India stands today as the world’s fastest growing large economy, backed by a robust GDP growth rate, progressive tax reforms, and a massive overhaul of its indirect tax system through the Goods and Services Tax (GST). The Union Budget’s structural reforms, including bold income tax rationalization, a focus on infrastructure spending, and long-term policy clarity, have strengthened the country’s macroeconomic profile. Yet, despite this enviable position, Indian equity markets tell a different story. The NIFTY 50, India’s premier benchmark index, has been underperforming relative to macro fundamentals. Foreign Institutional Investors (FIIs), who once served as the engine of Indian market rallies, are now net sellers at record levels. Short positions in the derivatives market hover around an unprecedented 92%, raising serious questions about whether an invisible lobby is working against India’s economic narrative both from within and outside its borders.
To understand this paradox, it is essential to unpack the interplay between India’s strong economic fundamentals and the peculiar behavior of global investors. At one level, the global financial ecosystem has been navigating turbulent waters. The United States Federal Reserve’s prolonged hawkish stance has kept global liquidity tight. Rising U.S. bond yields offer FIIs a safe and lucrative alternative, prompting capital flight from emerging markets, including India. Added to this is the uncertainty surrounding global geopolitics wars, supply chain realignments, and energy price volatility that make investors more risk-averse. Yet, the magnitude of FII selling in India far exceeds what macroeconomic reasoning alone can justify.
Between 2022 and 2024, FIIs cumulatively sold Indian equities worth billions of dollars, even as domestic investors, particularly retail and mutual funds, emerged as counterbalancing buyers. The selling intensity has not abated in 2025 either, with foreign investors booking profits and widening their short bets. This is not a casual exit but a calculated strategy that seems disproportionate to India’s fundamentals. When GDP growth surpasses 7, inflation moderates within the Reserve Bank’s tolerance band, and corporate earnings reflect resilience, why should FIIs abandon India at such scale? It raises a deeper question whether this is merely portfolio rebalancing or whether coordinated lobbying interests are at play.
The concept of a ‘foreign lobby’ influencing India’s financial trajectory is not new. Throughout history, global powers have leveraged capital markets to influence economic policy and political decisions in emerging economies. By exerting pressure through financial volatility, they create an environment where policymakers are forced to prioritize external sentiment over domestic requirements. In India’s case, despite consistent signals of macro stability, the NIFTY remains under pressure. This is symptomatic of forces working to undermine investor confidence. The disproportionate build-up of short positions, nearing 92% in derivatives, suggests not only hedging activity but also deliberate bearish positioning. It is difficult to ignore the possibility that certain financial cartels are actively pushing down valuations to weaken India’s growth story in the global arena.
One must also consider the timing of these moves. India is in the middle of a geopolitical repositioning emerging as a manufacturing hub, a digital innovation leader, and a preferred investment destination in the Global South. Trade diversification away from China has opened enormous opportunities for India, from electronics to pharmaceuticals. However, such shifts threaten entrenched global interests. A strong, independent India poses a challenge to traditional Western dominance in capital flows and production networks. If India is able to sustain high growth while strengthening its domestic capital markets, the dependency on foreign investors reduces drastically. This could explain the aggressive FII withdrawal less a response to fundamentals, and more a tactical move to test India’s economic resilience.
Domestic factors also merit scrutiny. While India’s macro picture is strong, internal challenges persist. Rural distress, uneven job creation, and pockets of corporate debt vulnerability provide foreign players with convenient narratives to justify bearish calls. Furthermore, domestic political contestations often amplify pessimistic sentiment. Lobbying is not only external; there are elements within who profit from volatility. Hedge funds, speculative traders, and even domestic brokers can align with global short-sellers, amplifying downward pressure on markets. Such alignment, whether conscious or opportunistic, contributes to the underperformance of NIFTY despite fundamentally bullish conditions.
A critical piece of this puzzle lies in perception management. Global rating agencies, brokerage houses, and international think tanks play an outsized role in shaping narratives around emerging markets. India’s repeated calls for sovereign rating upgrades have been ignored despite strong fundamentals, while minor fiscal slippages are magnified disproportionately. Reports from certain global investment banks frequently caution against India, citing governance issues, market valuations, or regulatory risks-often while ignoring similar or worse conditions in other economies. This creates an aura of uncertainty that serves the interests of those betting against Indian markets. In many ways, the market is not just about numbers but also about stories, and the stories being written about India abroad are not always aligned with its ground reality.
The question then arises: if a foreign lobby is indeed at play, what is the end goal? At one level, it could be to slow down India’s ascent as an alternative to China. By creating market volatility, foreign lobbies can discourage long-term institutional investors such as pension funds or sovereign wealth funds from making strategic allocations to India. Another objective could be to pressure Indian policymakers into maintaining a favorable stance for multinational corporations. For example, aggressive selling around key policy announcements can send a message that markets will punish reforms not aligned with foreign interests. At the extreme, such financial pressure can be used as a tool of economic statecraft, subtly influencing India’s geopolitical choices.
However, the narrative is not entirely bleak. The resilience of domestic investors has emerged as a formidable counterweight. Retail participation through systematic investment plans (SIPs) and mutual funds has grown exponentially, creating a steady inflow that cushions against FII volatility. The rise of domestic institutional investors signals a structural transformation where Indian capital is increasingly shaping Indian markets. In the long run, this reduces vulnerability to foreign lobbying. Furthermore, government policies to deepen bond markets, encourage sovereign wealth participation, and attract long-term patient capital are slowly shifting the balance of power.
For now, the paradox persists. India remains a top global growth story, yet its markets underperform. FIIs continue to sell at record levels, shorts dominate derivatives, and NIFTY rallies fail to match macroeconomic progress. The suspicion of a coordinated lobbyinternal and externalcannot be dismissed. Policymakers, investors, and regulators must remain vigilant. Strengthening transparency in derivative markets, curbing manipulative practices, and enhancing investor awareness are crucial steps. India’s journey will not be without challenges, but if its domestic strength continues to rise, the power of any foreign lobby will diminish in the long run.
Ultimately, the Indian market is a battleground of narratives. The foreign lobby, if indeed it is working against India, thrives on perception, volatility, and fear. Countering it requires confidence, resilience, and strategic clarity. As India steps into a new economic era marked by self-reliance, digital leadership, and manufacturing strength, the real test lies not in GDP numbers alone but in ensuring that its financial markets reflect its true potential. The NIFTY may not be rallying today, but the silent accumulation of domestic capital may well lay the foundation for the next great bull run one led not by foreign lobbies but by India itself.
(The writer is Professor of Department of Economics. University of Jammu)
