India-Focused Funds Face Continued Outflows Despite Global Emerging Market Rebound

India-dedicated funds continue to witness persistent capital outflows, even as foreign investors increase their exposure to other emerging markets, according to a recent report by Elara Capital. The latest data reveals that India-focused funds recorded $270 million in outflows this week, following significant withdrawals of $370 million and $425 million in the preceding two weeks. Despite a slight slowdown in the redemption pace, the overall trend remains negative.

Foreign Fund Flows: A Mixed Bag for India

Elara Capital analyst Sunil Jain noted in the Global Liquidity Tracker (March 7) that foreign inflows into India would have turned positive if not for the sustained pressure from India-dedicated funds. Since October 2024, these funds have collectively lost $4 billion, with $3.2 billion withdrawn in 2025 alone.

While outflows from U.S.-based India funds have eased, with just $15 million exiting this week—the lowest since January 2025—European and Japanese funds continue to experience elevated redemptions. Luxembourg-based funds led the outflows with $86 million, followed by Ireland ($59 million), the UK ($49 million), and Japan ($32 million).

Global Emerging Markets Attract Capital, India Lags

While India struggles with continued outflows, global emerging markets (EMs) are seeing renewed investor confidence. U.S. fund inflows surged to a five-week high of $7.9 billion from $5.1 billion the previous week, while European funds saw strong momentum, attracting $4 billion this week and $12 billion over the past month.

“This marks the strongest streak of inflows into Europe since June 2021, as investors position themselves for a breakout in the Euro Stoxx 50 index, which is trading near its 2000 highs,” noted Jain.

Additionally, capital is flowing back into various emerging markets. Hong Kong funds saw record inflows of $1.6 billion, while China funds experienced their highest inflows in five months, totaling $926 million. Foreign investors also returned to South Korea, Taiwan, Brazil, Mexico, Indonesia, Thailand, Singapore, and Malaysia over the past three weeks.

India: The Outlier in Emerging Markets

Despite the broader EM optimism, India remains the only major emerging market still facing sustained outflows, albeit at a slower pace. Outflows from Indian equities reduced to $113 million this week, significantly lower than the 2025 weekly average of $460 million.

A key factor weighing on India’s foreign investment appeal is its rich valuations compared to global peers. While other markets benefit from renewed risk appetite, India remains an exception, struggling to regain sustained foreign inflows. Analysts suggest that unless valuation concerns ease or broader global sentiment shifts in favor of India, the country may continue to lag behind in attracting foreign capital.

Conclusion

The persistent outflows from India-dedicated funds highlight the challenges the country faces in securing foreign investment despite a broader global risk-on sentiment. While emerging markets rebound, India’s high valuations and shifting investor preferences continue to act as deterrents. Moving forward, policy decisions, earnings growth, and macroeconomic stability will play a crucial role in determining whether India can reverse the trend and regain investor confidence.