Easing FDI norms to boost auto ancs, EV, EMS, specialty chemicals: Analysts

Analysts said that companies involved in sectors like EV, EMS, auto ancillary, BESS, renewable energy, and specialty chemicals are expected to benefit most from the easing FDI rules

The government has relaxed foreign direct investment (FDI) rules for China and other neighbouring countries sharing land borders with India, allowing overseas firms with up to 10 per cent shareholding from such nations to invest without prior approval. Previously, foreign companies with even a single shareholder from bordering countries needed to obtain mandatory government clearance before investing across sectors. However, other provisions, including sectoral caps and designated entry routes, will still apply.

Analysts indicate that this move will expedite joint ventures with neighbouring countries, especially China, enabling quicker technology transfer and helping position India as a manufacturing hub. Companies involved in sectors like electric vehicles, electronics manufacturing services (EMS), auto ancillary, battery energy storage systems (BESS), solar, renewable energy, and specialty chemicals are expected to benefit most from this policy change.

 

Sunny Agrawal, head of fundamental research at SBI Securities, said that the market will view this development positively over the medium to long term, as China is significantly ahead in technology. "This route will help domestic companies diversify and offer more competitive products and services to their clients."

"From the listed space, we believe auto ancillary and EMS will be the key beneficiaries, as we have already seen many players like Uno Minda, Dixon, etc., forming JVs with Chinese firms and using India as a manufacturing base," he added.

Though India has attracted minimal FDI from China, bilateral trade between the two nations has expanded significantly, with China now the second-largest trading partner of India.

In 2024-25, India’s exports to China decreased by 14.5 per cent to USD 14.25 billion from USD 16.66 billion in 2023-24. Conversely, imports increased by 11.52 per cent in 2024-25 to USD 113.45 billion from USD 101.73 billion in the previous year. The trade deficit widened to USD 99.2 billion in 2024-25 from USD 85 billion in 2023-24.

According to market expert Ajay Bagga stated that the move to relax FDI norms is a practical step aimed at attracting capital, fostering technological collaboration, and integrating Indian manufacturing more closely with global supply chains.

"Press Note 3 was needed in 2020. Now Press Note 5 introduces significant revisions to the FDI policy. What will be necessary alongside this is effective technology transfer and increased value addition within India. India can benefit from Chinese FDI, similar to what Vietnam, Thailand, Malaysia, and Mexico have achieved," he explained.

Sectors such as EVs, battery energy storage systems, EMS, solar, renewable energy, component manufacturing, and specialty chemicals are likely to witness heightened Chinese interest, he noted.

The analyst pointed out that this policy will not increase India’s trade exposure to China in the short term because New Delhi already has a trade deficit of nearly USD 100 billion with Beijing and that "limited FDI inflows are unlikely to cause additional decline."

Meanwhile, India’s exports to China grew by 38.37 per cent to USD 15.88 billion during April to January 2025-26, and imports rose by 13.82 per cent to USD 108.18 billion. The trade deficit stood at USD 92.3 billion.       =========================================

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