Indian Investors Flee Local Markets as Concerns Over AI-Driven Investment Strategies and Poor Returns Rise

Indian Investors Shift Focus Abroad Amid Weaker Domestic Returns

Investors in India are increasingly looking beyond their domestic markets, driven by a stretch of weaker relative returns and sustained foreign outflows from local equities. This shift is evident in the growing interest in overseas investments, with Indians investing more than $2.2 billion in overseas equities and debt in the 11 months through February, a 60% jump from the year-ago period, according to Reserve Bank of India data.

Global Investing Gains Popularity

The increasing interest in global investing is also reflected in the assets held in global feeder funds run by local money managers, which hit a record $4 billion in March, data from the Association of Mutual Funds in India show. This trend is driven by the fact that India is only about 3% of the global equity market, and its stocks don't always move in line with the rest of the world, making overseas investing a simple way to spread risk.

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The performance of local shares is also a factor in the shift towards global investing. The MSCI India Index has trailed its emerging markets counterpart by about 50% over the past year, even after recovering from its March lows. This is mainly due to slower earnings growth and limited exposure to themes like semiconductors. In contrast, markets such as Taiwan and South Korea have reached new highs.

Convenience and Access Drive Growth

The shift towards global investing is being driven by the growing convenience and access to overseas markets. Platforms like Vested Finance Inc. are making it easier for Indians to trade foreign stocks, with assets topping $1 billion in April, about doubling from a year ago. Other players, such as Zerodha Broking Ltd. and State Street Corp., are also stepping in to offer access to global stocks.

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Outbound Funds Gain Popularity

Local asset managers are responding to this demand by launching outbound funds from GIFT City, India's low-tax hub. For example, DSP Asset Managers launched the Global Equity Fund in June, which invests mainly in the US but also picks stocks from Taiwan, China, and Europe. This trend is expected to continue, with firms like PPFAS Asset Management also launching outbound funds.

Diversification Benefits

The attraction of global investing is about what's in short supply at home. Exposure to themes such as artificial intelligence, memory chips, and data-center infrastructure, which are major drivers of gains in markets like Korea and Taiwan, is still limited in India's $5 trillion equity market. Diversification benefits are real, as they give investors an exposure to a broad swath of tech stocks, said Sandipan Roy, chief investment officer at Motilal Oswal Private Wealth, which manages $21 billion.

Overseas-Focused Funds Delivered Strong Returns

Even so, overseas-focused funds from India have delivered strong returns. The HSBC Brazil Fund, run by the bank's local fund management arm, has gained nearly 70% in the past year, and the Axis Greater China Fund is up 65%. While platforms like Interactive Brokers and Vested are popular, other players are starting to step in to offer access to global stocks.

Mainstream Adoption

"I see 2026 as the year global investing goes mainstream," said Viram Shah, founder of Vested Finance Inc. This trend is expected to continue, with more Indians looking to diversify their portfolios and tap into the growth opportunities offered by overseas markets.