The equity markets in India are currently undergoing a period of high international visibility. There is a lot of interest from foreign portfolio investors (FPIs) in India. Some international brokerages predict that Indian stocks will be rerated in 2026. However, a key concern continues to influence investor mood even as values climb and India solidifies its position as one of the main countries with the fastest pace of growth in the world. This period of increased scrutiny is highlighted by the recent visit of Jen Sisson, CEO of the International Corporate Governance Network (ICGN). ICGN is one of the most significant voices on corporate governance standards in the world. It represents more than 300 international institutional investors in 40 countries with total assets surpassing $90 trillion. Sisson’s interactions with financial institutions like- SEBI, the Ministry of Corporate Affairs, the RBI and stock exchanges (BSE, NSE) demonstrate a common understanding. India’s capacity to draw steady, long-term foreign investment is directly dependent on the legitimacy of its governance ecosystem.
Why Corporate Governance Matters for Global Capital?#
Corporate governance is the set of policies, procedures and guidelines that determine how an organization is run. It guarantees that businesses run with accountability, transparency, and integrity. Further it is also governed by outlining the duties and obligations of boards, management, shareholders and other stakeholders. Corporate governance serves as an essential risk-management tool for foreign investors, making it much more than just a legal necessity. Strong governance reduces the possibility of unethical decision-making, fraud and misreporting. They are essential to keep a check on the depletion of investor money. Additionally, it boosts investor confidence, lowers volatility and increases long-term business value. For instance, international institutions that rely significantly on reliable disclosures to evaluate risks from a distance, corporate governance is essential. Evidence from around the world supports this relationship. Markets with better governance typically draw much larger long-term capital flows. Global institutional investments have significantly increased as a result of Japan’s extensive corporate governance law revisions over the past ten years. Similar increased attention has been sparked by South Korea’s recent efforts to strengthen minority shareholder safeguards. India is currently at a similar turning point where improving governance procedures may allow for more substantial and steady international investment flows.
India’s Governance Landscape: Strong Regulations, Weak Implementation#
Sisson noted that SEBI’s strict disclosure requirements and the Companies Act’s provisions on board independence form a strong regulatory foundation. She added that the increasing scrutiny of related-party transactions further strengthens India’s governance framework for an emerging market. When combined, these regulations offer a strong basis for corporate governance. A major worry for international investors is the ongoing discrepancy between regulatory compliance and the real level of governance. High levels of promoter control frequently result in unequal risk-reward. These outcomes affect minority shareholders and transactions that conceal preferential treatment. Further, inconsistent quality of financial disclosures across sectors and compromised board independence due to dense business networks are some of the major issues. These issues are made worse by lax enforcement, which increases moral hazard and lessens the deterrent power of regulations. Many of these governance failures manifest as “tail risks,” uncommon but potentially harmful occurrences. They have the potential to rapidly deplete investor cash. Such risks are binary in nature. As noted by Quantum CIO Chirag Mehta, ‘tail risks’ may lie dormant for years but once activated might result in a total or significant loss of capital. International investors continue to be aware of the governance gap that continues to shape India’s business landscape. The traditional risk indicators like volatility are unable to reflect these profound structural vulnerabilities.
Quantum Advisors: A Ground-Level View of Governance Risks#
Quantum Advisors, the first domestic signatory to the ICGN Stewardship Code, offered a sobering assessment of India’s corporate governance landscape. It is also one of the country’s most governance-focused investment firms. According to their integrity framework, around “30% of the Nifty index is uninvestable,” according to founder Ajit Dayal. This evaluation is based on Quantum’s own “integrity screen”. It has been developed over the course of more than ten years. It was developed to evaluate related-party transactions, promoter behavior, board independence, disclosure quality and past governance trends. Their internal database shows a concerning trend. Over the past ten to twelve years, India’s pool of well-governed enterprises has progressively shrunk. This result contradicts the fact that India’s quick formalisation and tightening of regulations inevitably resulted in better governance. Even if a business is high-performing or heavily weighted index constituent, it is excluded from Quantum’s portfolios if it falls into governance “grey areas,” as CIO Chirag Mehta emphasised. Dayal also highlighted the unequal allocation of risks and benefits, which is a deeper structural problem in promoter-dominated businesses. “The founder and I should receive the same return if we took the same risk. There are various rates of return for founders in many Indian businesses, he noted. For international investors, who anticipate equitable treatment of minority owners and see governance distortions as a direct danger to long-term capital protection. Such imbalance is a serious worry.
Sustainability, Reporting Standards, and Global Expectations#
Sisson emphasised the urgency for India to conform to international disclosure frameworks, especially the International Sustainability Standards Board (ISSB) standards. These are quickly taking the lead as the global standard for reporting on sustainability. Global investors are calling for standardised and consistent disclosures. The disclosures that incorporate environmental, social and governance (ESG) concerns into financial reporting as sustainable finance become more widely accepted. This entails clear board-level accountability for ESG results as well as open documentation of a company’s social effect, governance and climate exposure. International investors said that compliance with ISSB and other international standards is necessary. These standards close comparability gaps between markets, despite that India has made significant progress with the implementation of the Business Responsibility and Sustainability Reporting (BRSR) framework. As investors increasingly rely on unified disclosure systems to evaluate risks and make allocation decisions. Indian companies may be subject to valuation discounts and restricted access to long-term global financing in the absence of such harmonization.
Implications for India’s Capital Markets#
Assets held by foreign portfolio investors (FPIs) in India are currently valued at about $1 trillion. FPIs became net buyers in October and November, despite 2025 witnessing prolonged outflows due to global macroeconomic disruptions. The majority of the increased interest was directed through primary market issuances. There is less selling pressure as the secondary market inflows are gradually returning. Foreign investors are still cautious and discriminating. Now, the crucial question is whether India will be able to draw in the next generation of sizable, reliable, long-term institutional capital. The quality of governance reforms is a key factor in determining the answer. India might achieve a rerating trajectory similar to that of South Korea and Japan. The two markets saw significant rise in global institutional allocations after governance improvements by fortifying its governance ecosystem. Increased legitimacy would attract endowments, pension funds, sovereign wealth funds, and other patient capital providers, lowering India’s cost of capital and promoting wider economic expansion. Access to long-term funding and increased global integration would also benefit Indian businesses. On the other hand, tail risks could discourage significant institutional investors. It might further reduce valuation premiums and weaken India’s competitive advantage in emerging markets. All these may stagnate the governance systems.
Conclusion: Governance as India’s Strategic Advantage#
India is essential for global portfolios because of its market depth and economic momentum. However, gaining access to substantial capital necessitates more than just expansion. It also calls for trust. Trust is developed by openness, responsibility and uniform governance norms. “Governance is not about ticking boxes,” as Sisson pointed out. It is about making decisions, taking responsibility, and creating long-term benefits. India’s current challenges are ensuring that regulatory strength translates into boardroom behavior and corporate culture. Enhancing governance is a strategic economic opportunity rather than just a compliance burden. India is well-positioned to usher in a new era of international capital inflows. It may expand its financial markets and secure its place as a key pillar of the world economy, if it can bridge the gap between regulation and practice.
Clear Cut Research Desk
New Delhi, UPDATED: Dec 02, 2025 10:30 IST
Written By: Nidhi Chandrikapure
