By Ashutosh Joshi
Global funds are dumping Indian equities at a record clip as an energy shock from the US-Iran war threatens to derail the outlook of the world’s fastest-growing major economy.
In just over three months, they have pulled $18.84 billion from local shares, edging past the full-year record outflow of $18.79 billion seen in 2025, according to Central Depository Services India Ltd. The sustained selling has kept markets under pressure, and even a modest rebound following a temporary ceasefire earlier this week has done little to lift the mood. Local shares remain bruised, with over $600 billion wiped off their value from last year’s peak.
India’s $4.8 trillion equity market is losing some of its relative appeal, as global capital rotates toward artificial intelligence-linked economies where semiconductor demand is the bigger driver. The oil crisis has magnified existing concerns for the country — from recent rupee volatility to a still-fragile earnings recovery — while also underlining another problem: a lack of a clear catalyst to bring foreign money back.
“Indian stocks are missing a narrative,” said Abhishek Thepade, an Oslo-based portfolio manager with DNB Asset Management AS. “Earnings are undergoing a cyclical slowdown, while weakening currency and the impact of artificial intelligence on local software companies also impact the outlook.”
Although tech-heavy South Korea and Taiwan saw larger headline outflows in March — totaling $24 billion and $29 billion respectively — the peace deal may give them a stronger boost by refocusing investor attention on AI-driven chip demand, a factor largely absent in India.
That gap is already showing up in flows. South Korean and Taiwanese equities have seen inflows of $3.6 billion and $5.6 billion, respectively, so far this month. In contrast, global funds have pulled $3 billion from Indian equities, data compiled by Bloomberg show.
To be sure, domestic money continues to cushion the blow. Mutual funds and institutions have poured in $31 billion this year, with retail investors doubling down via record inflows into monthly equity investment plans last month, even amid heightened volatility. Still, that support has not been enough to counter persistent foreign selling.
Some investors see scope for a reversal once the Middle East tensions ease. “Now that India’s valuations have become reasonable, foreign flows could return once the current geopolitical uncertainty settles, though the timing remains uncertain,” said Harsha Upadhyaya, chief investment officer for equities at Kotak Mahindra Asset Management Co.
Still, 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 per cent this year, while the foreign exodus had recently pushed the rupee to record lows, forcing the central bank to step in to stabilise the currency.
Even after a recent moderation, valuations remain a sticking point. The Nifty 50 remains expensive relative to emerging-market peers, BofA Securities said in a note this week, adding it expects India to lag behind rivals.
