Redefining Ownership: 12 New Indian Companies Join Zero Promoter Holding List Since 2023

Redefining Ownership: 12 New Indian Companies Join Zero Promoter Holding List Since 2023 - 09Oct2025

Follow @vrk100

 

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

 

Explore how zero promoter holding is reshaping India’s large-cap landscape, with 12 new additions since 2023. Discover which sectors lead the shift and what it means for investors.

 

In a notable shift within India’s corporate landscape, the number of listed companies with zero promoter holding and a market capitalization of Rs 2,000 crore or more has risen from 30 in Mar2023 to 42 as of Jun2025 — a 40 per cent jump in just over two years (ownership data for Sep2025 is not yet available).

This change reflects a broader trend: the gradual decline of promoter-led ownership and the rise of professionally managed, institutionally owned businesses. 

Many of these additions are recent IPOs — including high-profile names like Swiggy, NSDL, Brainbees Solutions (FirstCry), Indegene, Samhi Hotels and Le Travenues(Ixigo) — which have entered public markets without traditional promoter groups.

In this post, we dive into:

> What’s driving this trend
> Which sectors dominate this shift
> Why zero promoter companies are increasingly attractive to FPIs, DIIs and retail investors

Note: Look for SEBI definition of a "promoter" at the end of the article. 

Let’s explore what this ownership change means for the Indian equity markets.

 

(article continues below)

-------------------------

Related articles:

Ownership Trends in NSE-Listed Universe of Stocks 31Mar2025 

Listed Companies with Zero Promoter Holding 21May2023

Listed Companies with Zero Promoter Holding 04Dec2022

-------------------------

 

1. Overview of Indian Listed Companies 

(as of 09Oct2025):

Total listed companies available for trade on BSE India: 4,500+

Companies with market cap of Rs 2,000 crore and above: 1,180

Companies with zero promoter holding and market cap ≥ Rs 2,000 crore: 42

Percentage of listed companies (≥ Rs 2,000 crore market cap) with zero promoter holding: 3.6%

Interpretation: Out of over 4,500 listed companies, only 1,178 have a market cap of Rs 2,000 crore or more.Within this Rs 2,000+ crore club, only 3.3 per cent (or 42 companies) have zero promoter holding.

This implies that promoter-driven ownership remains dominant in India's corporate landscape, especially among large-cap firms.

Companies with zero promoter holding are likely to be professionally managed, often including private sector banks (PVBs) like, ICICI Bank, IDFC First Bank, Federal Bank and City Union Bank; or firms with dispersed institutional ownership (both foreign portfolio investors, FPIs or domestic institutional investors, DIIs). 

There a strong correlation between low or nil promoter holding and high institutional holding in Indian listed companies. The reasons for this are:

Promoters usually hold a large chunk of a company's shares, which reduces the free float (shares available for public/institutional trading).

When promoter holding is zero or very low, almost the entire equity is available for institutions and the public — increasing float liquidity.

FPIs, especially large ones, prefer liquid stocks with high free float for ease of entry and exit.

Companies without promoter control are often professionally managed — seen as more transparent, with stronger corporate governance, like, ITC Ltd, HDFC Bank and Larsen & Toubro.

These characteristics attract FPIs looking for lower governance risk.

Many of these firms are market leaders or operate in defensive sectors (for example, banks, FMCG, retailing and infrastructure), making them attractive to long-term institutional investors.

Low or nil promoter holding does not equal weak company. In fact, these companies often represent mature, institutionally trusted businesses and their structure invites institutional participation due to better float, governance and liquidity.

Listed Companies in India with Zero Promoter Holding, with sector / industry and market cap as on 09Oct2025 >

For additional data with valuation ratios and FPI holding, check the screenshot at the end of the blog > 

	Listed Companies in India with
	Zero Promoter Holding
	Company's Name	Industry	Market Cap             Rs crore *
1	HDFC Bank	Banks	15,01,110
2	ICICI Bank	Banks	9,83,224
3	Larsen & Toubro	Construction	5,18,725
4	ITC	Diversified FMCG	5,01,023
5	Eternal Ltd	Retailing	3,33,372
6	Swiggy	Retailing	1,08,872
7	BSE	Capital Markets	94,773
8	One 97	FinTech	79,808
9	PB Fintech	FinTech	79,674
10	Yes Bank	Banks	70,337
11	Coforge	IT - Software	57,577
12	IDFC First Bank	Banks	53,967
13	Federal Bank	Banks	51,034
14	Multi Comm. Exchange	Capital Markets	44,432
15	Delhivery	Transport Services	34,923
16	N S D L	Capital Markets	23,624
17	Redington	Com Serv & Supplies	21,010
18	Brainbees Solutions	Retailing	19,566
19	Cams Services	Capital Markets	18,985
20	Crompton Greaves Con Elec	Consumer Durables	18,329
21	RBL Bank	Banks	17,597
22	UTI AMC	Capital Markets	16,439
23	City Union Bank	Banks	15,789
24	Sammaan Capital	Finance	13,348
25	Indegene	Healthcare Services	13,272
26	Indian Energy Exchange	Capital Markets	12,512
27	Le Travenues	Leisure Services	12,201
28	CarTrade Tech	Retailing	11,782
29	Ujjivan Small Fin Bank	Banks	9,316
30	South Indian Bank	Banks	8,133
31	T N Mercantile Bank	Banks	6,853
32	Karnataka Bank	Banks	6,515
33	Equitas Small Fin Bank	Banks	6,359
34	CMS Info Systems	Com Serv & Supplies	6,145
35	CARE Ratings	Capital Markets	4,403
36	Northern ARC Capital	Finance	4,371
37	Samhi Hotels	Leisure Services	4,291
38	Balmer Lawrie & Co	Diversified	3,513
39	Protean eGov Tech	IT - Services	3,485
40	Spice Lounge Food Works	Leisure Services	2,519
41	Hind.Oil Exploration	Oil	2,159
42	Bharat Global Developers	IT - Hardware	2,070
	09Oct2025    www.ramakrishnavadlamudi.blogspot.com
	*  promoter holding data  as on 30Jun2025
	* market cap as at end-09Oct2025

 

2. Ownership Shift

There is a gradual shift toward institutional ownership in the Indian stock market, with listed companies increasingly moving away from promoter-led structures to professional or institutional management, especially post-listing. 

Institutions (FPIs and DIIs) are taking larger roles, often replacing promoters as key stakeholders.This shift is attractive to global investors who value governance, liquidity and high free float.

Promoter exits: Recently, erstwhile promoters have exited from several listed companies. 

Examples include:

Coforge Ltd
Computer Age Management Services
CMS Info Systems

Baring Private Equity Asia fully exited from Coforge in 2023 and from CMS Info Systems in 2024. And Warburg Pincus exited from CAMS.

 

Some new entrants (since Mar2023) among the 12 additions to the Rs 2,000+ crore market cap club with nil promoter holding are:

Swiggy
NSDL or National Securities Depository Ltd
Brainbees Solutions
Indegene
Le Travenues
Samhi Hotels

These have been listed in India in the past two years.

Companies like Swiggy, FirstCry, Ixigo and Samhi Hotels were backed by venture capital and private equity firms, which chose to either fully exit or retain only a small stake at the time of their IPOs. 

As a result, these companies went public without any identified promoters, thereby sidestepping the stricter SEBI regulations that apply to promoter entities. 

More companies shifting to this model indicates:

> Maturing capital markets

> Higher institutionalisation

> Better governance expectations

This trend also affects index weightings, passive fund flows and market liquidity.
  

 

3. Sector-Wise Distribution of Companies

Of the 42 companies as per the list above, sectors / industries where promoter stake is nil as of now: 

Banks: 12 listed companies 
Capital markets: 7 
Retailing: 4 
Leisure services: 3 
Finance / NBFCs: 2 
Fintech: 2

More than 50 per cent (23 of 42) of these companies are in the financial ecosystem (private sector banks, capital markets, NBFCs and FinTech).

Capital markets sector includes firms, like, exchanges BSE, IEX and MCX; a depository and a mutual fund aggregator.  

NBFC firms include, Sammaan Capital (formerly Indiabulls Housing Finance) and recently listed Norther Arc Capital. FinTech firms include One 97 (Paytm) and PB Fintech. 

These sectors are naturally regulator-heavy, managed by industry veterans and have low promoter dependency.

4. FPI Holdings

Of the total 42 listed firms, 18 have FPI holding of 25 per cent or above as of Jun2025. The top five firms with highest FPI stake are: 

CarTrade Tech: 67.3 per cent stake in total
Redington: 62.6 
Le Travenues Technology: 59.9 
One 97 Communications: 54.9 
Delhivery: 53.0  

And four companies have FPI holding of between 20 and 25 per cent stake. They are: Care Ratings, Samman Capital, IDFC First Bank and MCX LTD.

Companies, like, UTI AMC, Northern ARC Capital, Swiggy and Brainbees Solutions have smaller FPI holdings of between 7 and 8 per cent of the total shareholding.

 

5. Why zero promoter companies are increasingly attractive to investors?

Zero promoter companies tend to have a higher free float, making them more liquid and accessible for institutional investors like FPIs and DIIs. 

Without concentrated promoter control, they are often perceived to have better corporate governance and board independence. 

Many of these companies are professionally managed, with decision-making driven by performance rather than legacy ownership. 

For retail investors, they offer cleaner structures, fewer conflicts of interest and alignment with global best practices in ownership and transparency. 

 

6. Implication for Investors

These companies are key targets for FPIs, mutual funds and passive investors due to their high free float and lower promoter-related corporate governance concerns.

A higher number of such companies can also enhance India's weight in global indices (for example, MSCI and FTSE), since free float-adjusted market cap increases.

From 30 companies in Mar2023 to 42 in Jun2025, there's been a 40 per cent rise in Indian firms (Rs 2,000+ crore market cap) with zero promoter holding — signaling a clear, though gradual, shift toward institutionalised and professionally managed corporate ownership in India’s capital markets. 

 

- - -

 

----------------  

P.S. 1:

There are certain companies with large promoter holding, but which are run by professional managers -- for example, Asian Paints, Marico Ltd, HCL Technologies, Pidilite Industries and others. In general, the promoters of these companies do not interfere in the day-to-day operations of the company. Such companies are in a completely different league. 

P.S. 2: SEBI definition of a "promoter" >

Regulation 2 (1) (oo) of the SEBI (Issue of Capital and Disclosure Requirements or ICDR) Regulations, 2018 defines a "promoter":

(i) (Identification in Documents) as a person who has been named in a draft offer document or offer document, or is identified by the issuer in an annual return; or

(ii) (Control or Influence) as a person who has control over the affairs of the issuer, directly or indirectly whether as a shareholder, director or otherwise; or

(iii) (Advisory Role) as a person in accordance with whose advice, directions or instructions the board of directors of the issueer is accustomed to act.

This definition includes various criteria and specifies that entities like financial institutions, mutual funds, insurance companies, venture capital firms or foreign portfolio investors are not considered promoters merely by the fact 20 per cent or more of the equity share capital of the issuer is held by such person unless such person satisfies other requirements prescribed under these regulations.

SEBI Regulation 2 (1) (oo) of the SEBI (Issue of Capital and Disclosure Requirements or ICDR) Regulations, 2018 > 

 

P.S. 3:

Tweet 20Oct2025 - Promoter selling (promoter equity dilution) in the past 2 to 3 years (from 33.2% in Mar2023 to 32.2% in Jun2025 -- data in the Tweet) may have to be seen in the context of promoter exits / IPOs coming with zero promoter holding

 
----------------

References and Additional Data: 

Tweet thread 02Aug2025 - Ownership trends in NSE-listed universe of stocks 

Listed Companies in India with Zero Promoter Holding, along with sector, market cap, PE ratio, PB ratio, price to sales ratio and FPI holding as of 30Jun2025 >

Screenshot > click on the image to view better >

 

----------------

 

Read more:

 

Blog of Blogs Theme-wise 

 

Weblinks and Investing

 

India Fixed Income Data Bank

 

Indian Economy Data Bank 

India Forex Data Bank 

 

Corporate Groups and Listed Companies 29Dec2024

 

Corporate Governance Concerns - Indian Companies 13Dec2024

 

Stocks and Peer Comparison by Industry 16Feb2024  

 

various uploads on Scribd by VRK100  

 

 

 

India's External Debt Metrics: Quiet Strength Beneath the Surface 06Oct2025 

Goodbye MIBOR, Hello SORR: Understanding RBI's New Interest Rate Benchmark 04Oct2025

Jane Goodall: What Separates Us From Chimpanzees 02Oct2025 

The Building Blocks of India's Money Market: Key Segments You Should Know 30Sep2025 

The Optimism Bubble of the Indian Mutual Fund Ecosystem 24Sep2025

RBI's LAF Corridor Simplified: SDF, MSF & All That Jazz 23Sep2025

A Layperson's Look at India's Complicated Tax Rules on Share Buybacks 16Sep2025 

Equity Raise After 12 Years: Should Shareholders of Asahi India Glass Be Worried? 16Sep2025 

 

Why We Forget Failed Tech 13Sep2025 

 

The Great GST Trick: Why 5% May Be Costing You More Than You Think 07Sep2025 

 

Listed Indian Companies Behind Most Popular Brands in India 06Sep2025 

 

A Quick Insight into the FREEDOM 100 Emerging Markets Index 21Aug2025 

Under Podger Needed Help. I Just Needed a Torch. 20Aug2025

ADR / GDR Valuation for Indian Companies - Demystified! 18Aug2025 

Notes from Damodaran's Corporate Life Cycle Thesis 18Aug2025 

Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025 

How America Lives on Borrowed Money -- And Gets Away with It!  10Aug2025

Decoding the Nifty Midcap 150 Quality 50: A Midcap Strategy Built on Fundamentals 07Aug2025 

Ownership Trends in NSE-listed Universe of Stocks 31Mar2025 

India Loves Banks, America Loves Tech - What the Sectors Weight Say! 30Jun2025 

Nifty 50 Index Evolution Over a Decade 2015 to 2025 

NSE Emerging Indices Comparison 30Jun2025  

Passive Titans of India: The Top 10 Equity Indices by Fund Size 17Jul2025

-------------------

Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

------------------------

CFA Charter credentials  - CFA Member Profile

CFA New Badge 

CFA Badge  

India’s External Debt Metrics: Quiet Strength Beneath the Surface 06Oct2025

India’s External Debt Metrics: Quiet Strength Beneath the Surface 06Oct25

Follow @vrk100

 

 

(The views expressed here are for information purposes only and should not be construed as a recommendation or investment advice. While the author is a CFA Charterholder with nearly 25 years of experience in financial markets, this content is intended to share general insights and does not constitute financial guidance. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)

Abbreviations used:

FDI Foreign Direct Investment

FPI Foreign Portfolio Investment

Forex Reserves - Foreign exchange reserves

RBI Reserve Bank of India 

 

 

In the summer of 1991, India stood at the edge of an external payments crisis, with foreign exchange reserves barely enough to cover a few weeks of imports. More than three decades later, that memory still shapes how we evaluate the country's external sector health. But much has changed — and largely for the better.

As of June 2025, India’s external debt metrics show a story of quiet strength beneath the surface. Debt levels may have risen in absolute terms, but key external debt vulnerability indicators — such as the debt service ratio, forex reserves cover of imports and short-term debt risk — have steadily improved.

This blog takes a closer look at the latest data released by the Reserve Bank of India and walks through India’s long journey from fragility to relative resilience. From rising forex buffers to a declining share of short-term debt, the numbers tell a story worth unpacking. 

 

Section A. Key terms explained

Before we delve deeper, let us define certain important terms:

1. External debt: It is total outstanding debt that India owes to foreign creditors — including governments, international financial institutions and private investors. (Public debt in India has various components: It basically consists of internal debt and external debt. Internal debt is borrowings from domestic sources, that is, within India. External debt is borrowings from outside India, that is, from foreign sources.)

India's external debt includes:

Sovereign borrowings (by Gov't of India)
Corporate borrowings from abroad
External commercial borrowings (ECBs)
NRI deposits
Short-term trade credit
Concessional debt  

Note: Unless otherwise stated, debt here means external debt.

2. External debt to GDP ratio: The ratio of the total outstanding external debt stock to GDP is derived by scaling the total outstanding debt stock (in rupees) at the end of the financial year by the GDP (in rupees at current market prices or nominal GDP in rupees) during the financial year. 

Interpretation of the ratio:

Higher ratio: Greater external vulnerability
Lower ratio: More manageable debt burden 

3. Debt service ratio (or External debt service ratio): The debt service ratio is measured by the proportion of total debt service payments (that it, principal repayment plus interest payment) to current receipts (minus official transfers) of Balance of Payments (BoP). 

It measures how much of India’s foreign exchange earnings are used to repay external debt.

Interpretation:

High ratio (>20%): Stress in the external sector / Balance of Payments
Low ratio: Comfortable repayment ability 

The higher the external debt service ratio, the greater the burden for a country to service external debt; and the lower the ratio, the better.

 

(article continues below)

-------------------------

Related articles:

Brief History of India's 1991 Forex Crisis and Gold Pledge 17Jun2024

India Foreign Exchange Reserves Comfortable 10Nov2023

India Foreign Exchange Reserves in Four Charts 08Mar2022 

The Elusive Current Account Surplus: What 25 Years of Data Reveal About India's Trade Balance 30Jun2025

Primer on Market Stabilisation Scheme (MSS) and Liquidity Management 02Dec2016

-------------------------

4. Forex reserves to total external debt ratio: It is calculated by dividing forex reserves by total external debt. It indicates how much of India’s external debt can be paid off immediately using forex reserves.

Interpretation:

More than 100%: Reserves exceed debt – means, strong ability to pay off external debt using forex reserves.

Less than 70%: Forex reserves are much less than external debt, making a country vulnerable to external shocks, if any. 

5. Short term external debt to forex reserves ratio: The ratio reflects a country's vulnerability to sudden capital outflows or currency depreciation. Short term debt here is of original maturity of one year and less.

In general, the lower the ratio, the stronger the ability to repay external debt in the short period of one year.

In general, if the ratio is higher than 30 per cent, a country is likely to face high liquidity risk on the external factor. Please note any single ratio needs to be interpreted in conjunction with other factors or ratios.  

6.Short term external debt to total external debt ratio:  Short term debt here is of original maturity of one year and less. 

Interpretation: In general, the lower the ratio, the stronger the ability to repay external debt in the short period of one year. A higher proportion makes the debt profile riskier, as it needs frequent refinancing.

7. Import cover or Reserve cover of forex reserves: Import cover (in months) is calculated by dividing forex reserves with monthly average imports. 

It denotes how many months of imports a country's forex reserves can cover, if forex earnings suddenly dwindle or come to a halt.

Suppose a country's import cover is 11 months -- it means its forex reserves can last upto 11 months of imports, even if it fails to attract any foreign exchange during the period. 

Generally speaking, an import cover of less than three months makes a nation defenceless against external crises. 

 

B. India's Key External Debt Vulnerability Indicators 

The following is a chart showing India Key External Debt Vulnerability Indicators >

The data in the chart are:

> As at the end of Jun.2025

> As at the end of financial year (India's financial year runs from April 1st to March 31st) from 2003-04 to 2024-25

> As at end of financial year for select years between 1990-91 and 2000-01

Please click on the image to view better > 

Key observations from the above chart:

(1). Data as of Jun.2025: 

India's total external debt is USD 747 billion, increasing slightly from USD 736 billion (Mar2025).

External debt to GDP ratio is 6.6 per cent. An external debt service ratio of 6.6 per cent is generally considered low and healthy for a major economy like India. 

This means that for every one dollar India earned through exports of goods and services (and other current account receipts), it spent just 6.6 cents to repay both interest and principal on its external debt.

Think of it like your personal finances:

If you earn Rs 100 a month, and your EMI is Rs 6.60, that’s not a big burden. It’s manageable and you still have plenty left over for other needs.

In short, a 6.6 per cent external debt service ratio indicates that India's external sector is stable and its debt burden is modest and manageable. 

External debt to GDP ratio is 18.9, improving slightly from 19.1 (Mar2025). 

Forex reserves are 93.4 per cent of total external debt, improving from 90.8 per cent in Mar2025. 

Short term debt (original maturity of one year and less) to forex reserves ratio is 19.4 per cent, improving slightly from 20.1 per cent (Mar2025).

Short term debt (original maturity of one year and less) to external debt ratio is 18.1 per cent versus 18.3 per cent (Mar2025).

The latest available data for import cover is 10.5 months as of Dec2024, which is highly comfortable. 

Overall, it reflects prudent external debt management on India's part as of Jun2025. 

 

(2). Period between Mar2014 and Jun2025:

External debt increased by more than 65 per cent from USD 446 billion (Mar2014) to USD 747 billion (Jun2025), during the current tenure of PM Modi government. 

But absolute figures won't tell the full story, which will be better explained by other metrics, such as, external debt to GDP ratio, debt service ratio, short term debt to forex reserves ratio and import cover. 

Let us see how they stack up during this period >

- Debt to GDP ratio decreased from 23.9 to 18.9 per cent -- the drop in the ratio reflects stronger macro fundamentals, making India better positioned today to withstand external pressures than it was a decade ago

- Declining debt to GDP ratio is a sign of strength. As GDP rises, even if external debt grows in absolute terms, the relative burden decreases. A declining debt-to-GDP ratio enhances investor confidence and strengthens India’s position with global credit rating agencies. 

- Debt service ratio slightly increased from 5.9 to 6.6 per cent, even though it increased, India is in a comfortable position

- Forex reserves to total external debt ratio surged from 68.2 to 93.4 per cent -- indicating that the growth in forex reserves is much higher than that of total external debt -- making India less susceptible to external shocks, if any

- Short term debt to forex reserves ratio has decreased from 30.1 to 19.4 per cent -- showing great improvement in India's external situation, expanding India's ability to meet short term debt repayment

-  Short term debt to total external debt ratio declined from 20.5 to 18.1 per cent, showing improvement 

- Import cover increased from 7.8 months (Mar2014) to 10.5 months (Dec2024)

Overall, the PM Modi government, in the past 11 years, has been able to increase India's capacity to withstand exogenous shocks.  

Possible Risks: 

While India’s external debt profile has improved on many fronts, one troubling trend in recent years is the slowdown in Foreign Direct Investment (FDI) inflows (see Update 16Jun2025 with Charts 91 and 92 in Forex Data Bank for latest data).

Foreign Portfolio Investment flows, especially in equity markets, too have been negative in recent years. 

FDI is the most stable source of external funding, unlike foreign portfolio flows that can reverse abruptly.

Sluggish FDI weakens the foundation of the capital account and, by extension, forex reserves sustainability.

India’s ability to maintain a comfortable external debt position depends not just on how much it borrows -- but also on how much high-quality capital it attracts.

If FDI remains subdued and portfolio inflows become more fickle, the stability of the external sector — and by extension, the rupee and forex reserves — could be tested in a future shock. 

As can be seen from the above chart, as of Mar2013, forex reserves to external debt ratio was lower at 71.3 per cent, short-term external debt to forex reserves ratio is high at 33.1 per cent and forex reserves cover was enough for seven months.

A combination of these vulnerable indicators, Fed's taper tantrum and the twin deficit problem (both current account deficit and fiscal deficit were high during the last years of PM Manmohan Singh government) culminated in India's mini forex crisis in Aug-Sep2013. 

Learning from the mini crisis, India started building up high forex reserves with a special window for attracting FCNR (B) deposits from non resident Indians. 

And several other measures, like, increasing short term interest rates, imposing capital controls and curbing gold imports, too have been taken to steady the external ship.  

 

(3). External Shock: 2013 Taper Tantrum: 

India’s experience during the May2013 "Taper Tantrum" is a textbook case of an emerging market external shock triggered by a sudden shift in global expectations — and it exposed key vulnerabilities in India’s external sector at the time.

In May 2013, the US Federal Reserve hinted at tapering its bond purchases, triggering the "Taper Tantrum." This caused massive capital outflows from emerging markets, exposing India as one of the "Fragile Five" (alongside Brazil, Indonesia, Turkey and South Africa) due to its large current account deficit and heavy reliance on volatile capital inflows.

The Fed's Taper Tantrum immediately triggered massive capital outflows from emerging markets, including India. Foreign investors, fearing the reversal of cheap global liquidity, began aggressively selling Indian stocks and bonds, severely impacting the country's external finances. 

India's large current account deficit (CAD), coupled with its reliance on volatile foreign funds, exposed it as one of the highly vulnerable Fragile Five economies. The rapid foreign currency exodus caused the Indian Rupee (INR) to depreciate sharply, driving up inflation and debt service costs. 

To stabilisse the currency, the RBI had to heavily intervene by selling billions of dollars from its foreign exchange reserves, significantly depleting its financial buffer. The appointment of and new remedial measures of a new RBI governor in Sep2013 also resulted in stabilising India's financial markets to a great extent.

 

(4). Period from 1991 to 2001: 

It was crazy to think India's forex reserves were enough to cover just three weeks as the end of Dec1990. A combination of political and economic factors led to a major forex crisis for India in 1991. 

You can learn about the full story in this blog. 

Coming back to the data from above chart, we can see that as of Mar1991, external debt to GDP ratio was very high at 28.3 per cent, debt service ratio was extremely high at 35.3 per cent, forex reserves to total external debt was abysmally low at 7 per cent and import cover was barely 2.7 months.

Even short term external debt indicators too were high, with short term debt to forex reserves was spectacularly high at 146.5 per cent, though short term debt was low at 10.2 per cent.

As delineated in the chart, these indicators have gradually improved in the next 10 years as India under the leadership of prime minister Narasimha Rao unleashed a wave of economic reforms between 1991 and 1993.  

 

C. Don’t View Debt Indicators in Isolation: Why a Holistic View Matters

While each external debt indicator tells us something important, none of them—on their own—can capture the full picture of India’s external vulnerability or financial health.

Here's why a composite, big-picture view is essential:

Each metric has its limitations. For example, external debt to GDP ratio tells size of debt relative to the overall economic activity, but it doesn't tell the ability to repay or liquidity risk. 

Debt service ratio gives a broad picture of debt repayment burden, but it does not inform you anything about long-term sustainability. Import cover denotes the external sector buffer, but is not linked to borrowing directly. 

You wouldn't judge your overall health from just blood pressure or cholesterol alone. Similarly, we shouldn’t judge India’s external debt health from just one or two ratios.

Instead, it's the combined reading across all indicators—like strong reserves, manageable debt levels and low servicing burden—that signals genuine macroeconomic resilience.

 

D. Excess Reserves? The Problem of Plenty

In response to its historical vulnerabilities — particularly the 2013 Taper Tantrum and the volatile nature of capital flows — India has adopted a strategy of building large foreign exchange reserves as a buffer. Excess reserves come out with their own set of issues. 

As of Sep2025, India's forex reserves are a little over USD 700 billion, including India's gold reserves. 

India runs a persistent current account deficit and relies heavily on capital inflows, especially portfolio investments, to fund it. Since these flows can reverse abruptly during global shocks, the RBI has intentionally stockpiled reserves to defend the rupee and maintain external stability.

In effect, India is compensating for a structurally weak balance of payments profile by holding large reserves as insurance.

While large reserves reduce vulnerability, they are not without drawbacks:

1. Low returns: Reserves are mostly invested in safe, low-yielding assets like US Treasuries — yielding well below India's cost of capital. Rate of earnings from our foreign current assets (FCA) has been historically low. 

However, during FY 2024-25, the rate of earnings increased to 5.31 per cent, which was a 24-year high due to a variety of factors (for data, see Update 01Jun2025 with Charts 80 to 81 of India Forex Data Bank).

2. RBI Gold Holdings: In recent years, the RBI has been steadily increasing its gold holdings as part of its forex reserves. As a result, gold now makes up a larger share of total reserves than it did a decade ago.

Between Mar2022 and Mar2025, the RBI gold holdings as a percentage of total forex reserves rose from 7.0 to 11.7 per cent. Conversely, it means income-earning assets share has been declining over the years. 

This trend signals a deliberate shift in India’s reserve management approach, reflecting a preference for resilience over returns.

While this strengthens the diversification and safety of the reserve portfolio and acts as a hedge against global financial instability, it also comes with a cost in terms of returns. Mind you, gold does not earn any returns. 

RBI is prioritising security, liquidity and stability over yield — a choice shaped by India’s past vulnerabilities and the uncertain global environment.

3. Sterilisation burden: Absorbing excess dollars into reserves requires the RBI to sterilise inflows by selling bonds domestically, which can impact liquidity and interest rates.

4. Fiscal cost: The central bank earns less on forex reserves than it pays out when absorbing rupee liquidity — creating an implicit fiscal burden.

India’s current policy leans toward erring on the side of caution — a response born from past episodes of trauma (1991, 2013). However, going forward, policymakers may need to strengthen the current account (via exports and energy security) and attract more stable FDI.

E. The Composition of Forex Reserves: A Hidden Vulnerability

While India’s foreign exchange reserves look comfortable on paper — covering over 90 per cent of external debt and providing 10+ months of import cover — it’s important to understand how those reserves are built. The source of reserves matters as much as the stockpile itself.

India typically runs a current account deficit (CAD) — meaning the country imports more goods, services and income than it exports. To finance this gap, India relies heavily on capital account inflows, such as, Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) and others like, External Commercial Borrowings (ECBs) and NRI Deposits.

This makes India’s forex reserves dependent on the confidence and sentiment of foreign investors.

In contrast, China consistently runs large current account surpluses — exporting more than it imports. This allows it to accumulate reserves through trade earnings, a much more stable and self-reliant mechanism.

China’s foreign exchange reserves are earned, while India’s are largely borrowed or invested.

Why This Matters:

Volatile capital flows (especially FPI) can reverse suddenly — as seen during the 2013 taper tantrum, COVID-19 Pandemic or 2022 global interest rate hikes.

India is thus more exposed to external shocks like crude oil price spikes, a strengthening dollar or global risk-off sentiment.

F. Key Takeaways

India’s external debt situation is stable and sustainable, meaning debt to GDP ratio is under control.

Debt servicing burden is low, indicating no strain on foreign exchange earnings.

Forex reserves remain strong relative to external debt, but keep in mind India's forex reserves are not strengthened by current account surplus, but by capital account. Any sudden foreign outflows from India could pose dangers to India's external sector.

One hopes the current central government would make sincere efforts to increase FDI flows to India, so that external sector remains stable without relying excessively on volatile capital flows. FDI flows are the Achilles' heel of PM Modi government in the past four to five years.

Short-term vulnerabilities are under control, as short-term debt indicators declined, but still need monitoring.

Import cover is adequate (historically above nine months in recent years).

- - -

 

----------------

References: 

RBI press release 30Sep2025: India’s External Debt as at the end of June 2025 

Ministry of Finance: India's External Debt: A Status Report 2024-25 (dated 08Sep2025)

DEA, Ministry of Finance - Various Reports on India's External Debt - annual Status Reports and quarterly reports

Screenshot with 35-year data on external debt metrics from the above Status Report > 

 

RBI Annual Reports of various years 

RBI Half-Yearly Report of Management of Forex Reserves of several years

Update 28Jun2025 with Chart 100 of Forex Data Bank: External debt vulnerability indicators 

US Tapering Is Postponed 19Sep2013

India Forex Reserves Comfortable 10Nov2023 

Tweet 06Oct2025 - visual misrepresentation / distortion of data by manipulating (elongating) the Y-axis (with external debt to GDP ratio)

Screenshot of External Vulnerability Indicators from 2024-25 Annual Report > 

 

----------------

 

Read more:

 

Blog of Blogs Theme-wise 

 

Weblinks and Investing

 

India Fixed Income Data Bank

 

Indian Economy Data Bank 

India Forex Data Bank 

 

Corporate Groups and Listed Companies 29Dec2024

 

Corporate Governance Concerns - Indian Companies 13Dec2024

 

Stocks and Peer Comparison by Industry 16Feb2024  

 

various uploads on Scribd by VRK100  

 

 

 

Goodbye MIBOR, Hello SORR: Understanding RBI's New Interest Rate Benchmark 04Oct2025

 

Jane Goodall: What Separates Us From Chimpanzees 02Oct2025 

 

The Building Blocks of India's Money Market: Key Segments You Should Know 30Sep2025 

 

The Optimism Bubble of the Indian Mutual Fund Ecosystem 24Sep2025

 

RBI's LAF Corridor Simplified: SDF, MSF & All That Jazz 23Sep2025

 

A Layperson's Look at India's Complicated Tax Rules on Share Buybacks 16Sep2025 

 

Equity Raise After 12 Years: Should Shareholders of Asahi India Glass Be Worried? 16Sep2025 

 

Why We Forget Failed Tech 13Sep2025 

 

The Great GST Trick: Why 5% May Be Costing You More Than You Think 07Sep2025 

 

Listed Indian Companies Behind Most Popular Brands in India 06Sep2025 

 

A Quick Insight into the FREEDOM 100 Emerging Markets Index 21Aug2025 

 

Under Podger Needed Help. I Just Needed a Torch. 20Aug2025

 

ADR / GDR Valuation for Indian Companies - Demystified! 18Aug2025 

 

Notes from Damodaran's Corporate Life Cycle Thesis 18Aug2025 

 

Nifty Midcap 150 Quality 50 Index: Has Quality Lost Its Edge? 10Aug2025 

 

How America Lives on Borrowed Money -- And Gets Away with It!  10Aug2025

 

Decoding the Nifty Midcap 150 Quality 50: A Midcap Strategy Built on Fundamentals 07Aug2025 

 

Ownership Trends in NSE-listed Universe of Stocks 31Mar2025 

 

India Loves Banks, America Loves Tech - What the Sectors Weight Say! 30Jun2025 

 

Nifty 50 Index Evolution Over a Decade 2015 to 2025 

 

NSE Emerging Indices Comparison 30Jun2025  

 

Passive Titans of India: The Top 10 Equity Indices by Fund Size 17Jul2025

  

-------------------

Disclosure:  I've got a vested interest in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.

------------------------

CFA Charter credentials  - CFA Member Profile

CFA New Badge 

CFA Badge