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.

Oil 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 Questions

Artificial 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.

For India, investors are debating how AI could affect the country's services sector and technology exports. While there is no clear answer yet, Bagree highlighted that overseas investors remain encouraged by India's ongoing reforms, including policy changes related to foreign investment, insurance, and external commercial borrowings.

Foreign Fund Outflows Driven by Global Factors

Addressing 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.

Rupee Outlook Depends on Global Events

Bagree described the rupee's near-term direction as highly dependent on geopolitical developments. A quick resolution to global conflicts or supportive policy measures could strengthen the currency, while prolonged tensions could result in further weakness.

However, he stressed that India's underlying macroeconomic indicators remain healthy, supported by strong growth, controlled inflation and a manageable current account deficit. He also backed the Reserve Bank of India's approach of limiting excessive currency volatility rather than targeting a specific exchange rate.

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.