Global investors are offloading Indian equities at a record pace as the energy shock triggered by the US–Iran conflict threatens to weaken the growth outlook for the world’s fastest-growing major economy.
Foreign funds have withdrawn USD 18.84 billion from Indian equities in just over three months, surpassing the previous full-year record outflow of USD 18.79 billion in 2025, according to data from Central Depository Services India. The sustained selling pressure has weighed on markets, with over USD 600 billion erased from market capitalisation since last year’s peak.
The sell-off reflects a shift in global capital allocation, with investors rotating towards artificial intelligence-driven markets such as South Korea and Taiwan, where semiconductor demand is a key growth driver. In contrast, India’s equity market, valued at around USD 4.8 trillion, is grappling with concerns over elevated oil prices, currency volatility and a still-fragile earnings recovery.
While South Korea and Taiwan saw larger outflows in March, totalling USD 24 billion and USD 29 billion respectively, they have since attracted inflows of USD 3.6 billion and USD 5.6 billion this month. India, however, has continued to see outflows of around USD 3 billion over the same period, highlighting a divergence in investor preference.
Domestic investors have provided some support. Mutual funds and institutional investors have infused approximately USD 31 billion into Indian equities this year, with retail investors continuing to invest through record inflows into systematic investment plans despite heightened volatility. However, this has not been sufficient to offset persistent foreign selling.
Over the past two years through March, foreign investors have withdrawn more than USD 34 billion from Indian equities, during which the MSCI India Index has underperformed regional peers in most quarters. The Nifty 50 is down around 8 per cent so far this year, while sustained outflows have also pressured the rupee, prompting intervention from the central bank.
Valuations remain another key concern. According to BofA Securities, Indian equities continue to trade at a premium to other emerging markets, which could limit upside and lead to continued underperformance relative to global peers.
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