Only a weaker dollar will bring foreign investors back to India: Ruchir Sharma

Renowned investor and author Ruchir Sharma believes foreign investment will only return to India once the US dollar weakens. His comment comes at a time when India’s stock markets have seen record FII outflows.
In an interview with India Today News Director Rahul Kanwal, Sharma explained that the primary factor hindering foreign capital inflows into India is the strength of the dollar.
“The one variable that every investor in India should look at as to when foreign flows will start coming back into India is when the dollar turns,” he said. “Until and unless the dollar starts to weaken, then that’s when I think foreign investors will return.”

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Sharma also pointed out that unless there is a significant change in US market fundamentals, foreign flows into emerging markets like India will remain weak.
“Unfortunately, we’re in a paradigm today where you need something to crack in America,” he noted, referencing America’s massive budget deficits or a potential dollar weakening.
“Unless something like that happens, America and the world is going to remain very obsessed with just US investments, and the prospect for foreign flows coming into these countries will remain pretty grim now.”
Sharma further explained that the dominance of the US in global financial markets, where its stock market capitalisation now makes up 65% of the global market value, is a major reason behind foreign investors’ reluctance to look elsewhere.
“The last 15 years, the post-global financial crisis world from a financial perspective has been entirely dominated by America,” he said.
Despite India’s strong performance, Sharma believes that investors still see the US as the safest bet. “India’s best performing emerging market and its returns are purely the same as America. But obviously, people see much greater risk in going abroad, so they don’t feel that you’ve been compensated enough for the risk that you’re taking,” he explained.
This leaves India in a tough spot, as foreign investors see no incentive to shift their capital. “There is zero interest in international in America from an investing perspective,” Sharma noted.
“Zero interest, absolutely nobody, because they look at the returns for the last 10 to 15 years and they feel that the American stock market has given us these incredible returns.”
While some capital might temporarily flow to China due to stimulus measures, Sharma remains unconvinced about its long-term sustainability.
“I think this is all short-term, you know, because I don’t think that’s sustainable. I don’t think China’s growth story is so sustainable that people are going to reallocate capital to China, move away from India. I just don’t think that’s going to happen,” he said.
Sharma remains cautiously optimistic that this imbalance can’t last forever. “How can one country be 65% of the world’s stock market capitalisation?” he said, expressing hope that eventually, this dominance will shift.