India-Dedicated Funds Face Continued Outflows Amid Global Emerging Market Rebound

Foreign Investors Shift Focus to Other Emerging Markets, Despite Slower India Outflows

India-focused investment funds continue to witness persistent capital outflows, even as fund flows into key Global Emerging Markets (GEMs) turn positive. Despite a modest slowdown in redemptions, India remains an outlier in the broader emerging market rally, with global investors favoring other economies over Indian equities.

According to Elara Capital’s Global Liquidity Tracker (March 7, 2025), India-dedicated funds saw $270 million in outflows this week, following withdrawals of $370 million and $425 million in the previous two weeks. Since October 2024, these funds have registered cumulative outflows of $4 billion, with $3.2 billion withdrawn in 2025 alone.

US-Based India Funds See Slower Outflows, but Europe and Japan Continue Selling

While redemptions from U.S.-domiciled India funds have eased significantly—with just $15 million exiting this week, the lowest level since January 2025—European and Japanese investors continue to reduce exposure to Indian equities.

• Luxembourg-based funds led outflows, with $86 million withdrawn this week.
• Ireland-based funds saw $59 million in redemptions.
• UK funds recorded $49 million in outflows.
• Japanese funds witnessed $32 million in withdrawals.

Foreign investors remain cautious about India’s relatively expensive valuations compared to other emerging markets, limiting fresh capital inflows into Indian equities.

Global Emerging Market Funds See Renewed Foreign Interest

While India grapples with outflows, global investors have been reallocating capital to other emerging markets, benefiting from recent corrections in U.S. and European markets.

• U.S. equity funds recorded a five-week high in inflows at $7.9 billion, up from $5.1 billion the previous week.
• European equity funds continued their strong streak of inflows for the third consecutive month, with $4 billion in inflows this week and $12 billion over the past four weeks.
• Hong Kong funds saw a record $1.6 billion in foreign inflows, the highest on record.
• China funds registered their strongest inflows in five months at $926 million.
• South Korea, Taiwan, Brazil, Mexico, Indonesia, Thailand, Singapore, and Malaysia have all experienced a return of foreign capital over the past three weeks.

India Remains the Only Major Emerging Market Still Facing Outflows

Despite a moderation in India’s outflows, the country remains the only major emerging market still experiencing sustained capital flight. Outflows from Indian equities slowed to $113 million this week, significantly lower than the average weekly outflow of $460 million since the beginning of 2025.

India’s high valuations relative to global peers remain a key challenge in attracting new foreign investment. While other emerging markets benefit from renewed global risk appetite, India continues to lag behind, struggling to regain sustained inflows.

As global investors reposition their portfolios, India’s ability to attract foreign capital will likely depend on valuation adjustments, earnings growth, and macroeconomic stability in the coming months.