India on European investors' radar: What’s driving the trend?

Something’s stirring in European boardrooms - India is back in focus. From recent market corrections to shifting geopolitical equations, a range of factors is prompting EU investors to take a closer look. They’re not deploying capital just yet, but they’re watching closely, recalibrating their exposure, and weighing the possibilities. The interest is quiet but unmistakable, and it’s gaining ground.

As Macquarie strategists observed in a recent investor note (March 2025), “Across our meetings with 30 EU investors, we clearly felt, at the margin, post the recent correction in Indian markets... investors are looking to deploy money into Indian markets. While most of them did not want to go to an overweight position, they were thinking of cutting their current underweight stance.”

That’s right - while they’re not going all in just yet, many are stepping off the sidelines.

Trade dynamics between India and the EU

India and the EU have been strengthening their economic ties, and the EU now makes up 14.4% of India's total trade in goods. Services trade has also skyrocketed, jumping from $34.7 billion in 2020 to $62.7 billion in 2023.

Source: The Economic Times

As the chart above shows, bilateral trade between India and the EU has nearly doubled in the past decade, jumping from $72.3 billion to $137.5 billion. Indian exports valued at $75.92 billion and imports at $61.48 billion. The EU accounts for around 17% of India’s total exports, while exports to India represent 9% of total EU overseas sales.

India and the EU have just wrapped up their 11th round of FTA talks, with a two-stage plan now in place to fast-track the deal. But that’s not all. Talks are also progressing on investment protection and mutual recognition of geographical indications (GIs), pointing to a broader push to strengthen trade ties and build investor confidence.

Why are European investors eyeing Indian equities now?

European investors have always had their eye on India, but now they’re diving in even deeper. So, what’s driving this sudden interest? While the markets have recovered, periodic market corrections in the past have often created attractive entry points - one such instance being the sharp 15% dip in the Nifty index from its peak in September 2024 , opening a window of opportunity.

They’re also watching domestic mutual fund flows closely: if Indian investors stay bullish through market dips, it signals resilience—something global investors desire.

Another possible factor? A shift in sentiment away from US equities. In February, European-domiciled US equity ETFs saw $510 million in outflows—the first pullback since May 2023—compared to $22.8 billion in inflows just three months earlier. For European investors, India may now offer the right mix of timing, stability, and opportunity.

“The clearest change in trend took place in Europe. Perhaps investors began shunning the US [in favour of] European stocks due to geopolitical tensions, but they could also have been chasing performance,” said Bryan Armour, director of passive strategies research for North America at Morningstar.

EU investments in India

The EU’s FDI stock in India hit about $139.1 billion in 2022, and it grew even more, reaching $151.3 billion in 2023.

Source: Ceicdata *EU: European Union

When it comes to foreign portfolio investment (FPI), Europe is also leading the way. Luxembourg, Ireland, the UK, Norway, and the Netherlands are all among the top 10 sources of FPIs into India.

The point being that Europe’s ties with India have steadily been increasing over the past decade, with that, their understanding of the market and its potential have also improved. This has led EU investors to appreciate the opportunities provided by the Indian markets.

How Europe is funding India's growth

European investments in India aren’t just market-driven (like FPI); many are long-term, project-specific capital infusions aimed at infrastructure, energy, and innovation (FDI). Here’s a snapshot of who's investing and where that money is going:

European FDI in India: Key long-term investments powering growth

Source: Reuters

As showcased above, Europe’s capital is flowing steadily into India’s growth story. Take EQT, for instance - with $295 billion in global AUM, it has already funneled $6 billion into India in just the past 18 months.

"We believe India is still an extremely attractive investment destination for international investors like us," said EQT Asia Chair Jean Eric Salata at a December 2024 event, underscoring the long-term confidence in the market.

Let’s now take a look at a few European FPI funds:

Source: Fund documents

Above are just a few of the many! Wondering where most of them are based? As per reports, “As on March 31, 2024, 11,219 FPIs were registered in India from various jurisdictions. The highest registration was from the USA (3,457) followed by Luxembourg (1,393) and Canada (804).”

Why Europe’s India play matters

With over 6,000 European companies operating in India and investments crossing $117 billion, the impact is both broad and deep. These businesses directly employ 1.7 million people and support another 5 million through indirect jobs. Their presence also nudges Indian firms toward better governance and global standards. Add to that the boost in market liquidity, and the value is clear.