Highlights
- Citi says higher oil prices could have a larger-than-expected impact on India’s economy, inflation and currency.
- Global investors remain positive on India due to reforms, growth prospects and macroeconomic stability.
- Potential inclusion in major global bond indices could attract USD 20-25 billion in stable foreign inflows.
India’s economic fundamentals remain resilient, but rising oil prices and the rapid rise of artificial intelligence are emerging as the two biggest concerns for global investors, according to Citi India Markets Head Aditya Bagree.
Speaking at the Citi India Conference 2026, Bagree said foreign investors continue to view India as a long-term growth story despite geopolitical uncertainties, volatility in global markets, and concerns around energy prices.
Created with AI. Errors are possibleOil Prices Remain a Key Concern
Bagree noted that investors are closely monitoring developments in the Middle East and their impact on crude oil prices. Even if tensions ease quickly, oil prices may not return to previous levels immediately due to damage to energy infrastructure and the need for countries to rebuild depleted strategic reserves.
Higher energy costs are already influencing inflation expectations worldwide, leading to an increase in bond yields across several markets, including India. Since India relies heavily on imported crude oil, elevated prices could put pressure on the country’s balance of payments and the rupee.
AI Creating New Winners and New QuestionsArtificial intelligence is another major theme shaping investment decisions globally. According to Bagree, economies such as South Korea and Taiwan are benefiting from strong semiconductor manufacturing capabilities, while the United States is witnessing significant investments in AI-related infrastructure, including data centres and power projects.
Foreign Fund Outflows Driven by Global FactorsAddressing concerns over foreign capital outflows, Bagree said much of the recent movement is linked to global developments rather than domestic weaknesses. Rising oil prices naturally increase India’s import bill and can widen the current account deficit.
Despite these challenges, he emphasised that India continues to be among the fastest-growing major economies globally. Inflation has largely remained under control, and the current account deficit is expected to stay manageable even if it rises to around 2% of GDP due to higher oil prices.
Bond Index Inclusion Could Unlock Billions
One of the biggest opportunities for India, according to Bagree, is potential inclusion in additional global bond indices. He said that if India secures entry into major benchmark indices, it could attract an estimated $20 billion to $25 billion in stable foreign inflows.
Such inflows would support the balance of payments, improve liquidity, strengthen demand for government bonds and potentially lower borrowing costs.
Bagree also said that removing withholding tax on government bonds would make Indian debt instruments more attractive to global investors by improving post-tax returns.
RBI May Prioritise Inflation Over Currency Defence
On monetary policy, Bagree said market participants are pricing in multiple interest rate hikes over the next year. However, he does not believe rate increases should be used primarily to defend the rupee.
Instead, he argued that monetary tightening should be considered only if higher oil prices or weather-related disruptions trigger sustained inflationary pressures. Citi’s economists currently expect two rate hikes over the next year rather than an aggressive tightening cycle.
India’s Long-Term Investment Story Remains IntactDespite concerns around oil prices, inflation and currency volatility, Bagree believes India’s long-term investment appeal remains strong. He dismissed suggestions that investors are avoiding India because of AI-related trends elsewhere, arguing that capital naturally flows toward markets offering the strongest growth opportunities.
He added that India continues to attract investor attention due to its economic growth prospects, ongoing reforms and expanding role in global markets.
