Kotak Institutional Equities forecasts a significant surge in India’s capital account inflows to about $120 billion in FY2027, driven primarily by banking capital and external commercial borrowings, despite concerns over a fragile external environment and current account deficit widening.
Kotak Institutional Equities expects India’s capital account inflows to rebound sharply in fiscal 2027, saying banking capital and external commercial borrowings could do most of the heavy lifting. In a report dated August 16, the brokerage projected capital account flows of about $120 billion in FY2027, up from roughly $2 billion in FY2026, with banking capital contributing $80 billion, including $70 billion from Foreign Currency Non-Resident Bank deposits, and another $20 billion from external commercial borrowings.
That improvement, however, would come against a more fragile external backdrop. Kotak said India’s current account deficit could widen to 1.2 per cent of gross domestic product in FY2027 from 0.6 per cent in FY2026, assuming average crude prices of $85 a barrel. Even so, the firm said stronger capital inflows could leave the balance of payments in surplus by about $61 billion, helping to cushion the impact of a larger trade gap.
The report also struck a cautious note on equity and direct investment. Kotak said net foreign direct investment may stay weak because of heavy private equity and venture capital exits and continued overseas investment by Indian companies. It also warned that foreign portfolio flows could remain erratic, depending on India’s relative appeal versus other markets, even as debt inflows have improved on expectations that India could be included in the Bloomberg Global Aggregate Index.
Kotak’s view sits alongside other recent forecasts that also point to stronger capital-account support in FY2027. Motilal Oswal Financial Services has projected a capital account surplus of $105 billion, backed by higher ECBs, FCNR(B) deposits, portfolio inflows and resilient foreign direct investment, while CareEdge Ratings expects net FDI inflows to recover to $15 billion. Moneycontrol reported that Kotak itself has highlighted the risks of India’s growing reliance on external capital, especially if elevated energy prices and weaker portfolio flows push the current account further into deficit.
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