Outflows from Indian Equities Reach Record High Amid Concerns Over Economic Growth

Global Funds Dump Indian Equities at Record Pace Amid US-Iran War Tensions

Global funds are pulling out of Indian equities at an unprecedented rate, with $18.84 billion withdrawn in just over three months, eclipsing the previous full-year record outflow of $18.79 billion seen in 2025. According to Central Depository Services India Ltd., this sustained selling has kept markets under pressure, and even a modest rebound following a temporary ceasefire earlier this week has failed to lift the mood.

Local shares remain battered, with over $600 billion wiped off their value from last year's peak. India's $4.8 trillion equity market is losing its relative appeal, as global capital rotates toward artificial intelligence-linked economies where semiconductor demand is the primary driver. The oil crisis has exacerbated existing concerns for the country, including recent rupee volatility and a still-fragile earnings recovery, while also highlighting a lack of a clear catalyst to bring foreign money back.

India's equity market is missing a narrative, with earnings undergoing a cyclical slowdown, a weakening currency, and the impact of artificial intelligence on local software companies negatively impacting the outlook. While tech-heavy South Korea and Taiwan saw larger headline outflows in March, totaling $24 billion and $29 billion, respectively, the peace deal may have given them a stronger boost by refocusing investor attention on AI-driven chip demand, a factor largely absent in India.

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The gap in flows is already evident, with South Korean and Taiwanese equities seeing inflows of $3.6 billion and $5.6 billion, respectively, so far this month, in contrast to the $3 billion withdrawn from Indian equities. Despite domestic money continuing to cushion the blow, with mutual funds and institutions pouring in $31 billion this year, and retail investors doubling down via record inflows into monthly equity investment plans last month, even amid heightened volatility, this support has not been enough to counter persistent foreign selling.

Some investors see scope for a reversal once the Middle East tensions ease, with foreign flows potentially returning once the current geopolitical uncertainty settles, though the timing remains uncertain. A steady retreat by global funds has led to more than $34 billion of outflows from Indian equities over the past two years through March, a period that's seen MSCI Inc.'s India gauge trail regional peers in all but two of the past eight quarters. The Nifty 50 Index is down 8% this year, while the foreign exodus had recently pushed the rupee to record lows, forcing the central bank to step in to stabilize the currency.

Even after a recent moderation, valuations remain a sticking point, with the Nifty 50 remaining expensive relative to emerging-market peers, according to BofA Securities. The bank expects India to lag behind rivals.

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