Global Investors Withdraw Decade's Worth of Equity Investments from India

India's Stock Market Attractiveness Fades Amid Global Shift

Overseas investors' cumulative net equity investments in India have slid to a near-decade low after relentless selling, highlighting the fading attractiveness of the nation's $4.9 trillion stock market. The aggregate net investments by foreign portfolio investors in local shares stood at 7.3 trillion rupees as of June 1, the lowest level since 2016, according to data from National Securities Depository Ltd.

Indian equities, once touted as an emerging-market darling, are losing their relative appeal as the oil shock from the US-Iran war dims the outlook for the world's fastest-growing major economy and global capital shifts toward economies directly tied to the AI infrastructure buildout. The country's stock market has fallen out of the world's top five by value for the first time in three years, trailing Asia's tech hubs of Taiwan and South Korea.

The trend of global capital shifting toward AI-oriented economies may have significant implications for India's economy. According to Carson Block, founder of investment research firm Muddy Waters Capital LLC, AI could replace as much as 15% of highly paid knowledge workers in the US over the next several years.

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India's near-term earnings growth is expected to be slower than commodity- and tech-oriented emerging market peers, while the country has little exposure to the AI and semiconductor cycle that may continue for another one-to-three years. This has led Kotak Institutional Equities strategists, including Sanjeev Prasad, to write that they expect FPI flows to stay muted, given India's low attractiveness versus other EM markets.

The shift in global capital has also led to a decline in global funds' ownership in listed companies, which has shrunk to 15% from almost 20% a decade ago. In contrast, domestic mutual funds, buoyed by steady flows from retail investors, now control nearly 20% of the market, as noted by Venkatesh Balasubramaniam, a strategist with JM Financial Institutional Securities.

Note: The table shows the aggregate net investments by foreign portfolio investors in local shares in India, as of June 1, for various years since 1993.

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