Global money has been heading for the door in India this year, with net outflows around $25 billion and allocations redirected to markets tied to the AI boom. That reversal comes after a hot run when India was a top destination, and it has dragged foreign portfolio ownership on National Stock Exchange of India listings down to levels last seen 17 years ago. A recent Bank of America investor poll now puts India at the bottom of Asia's pecking order.
Valuations have not helped. The market's forward multiple sits near 17.6, a bit under its own norm, yet the Nifty 50 still commands a 77% premium versus MSCI's emerging-markets index. The benchmark is hovering around where it was in mid 2024 and is on pace to break a ten year streak of annual gains, a run among major markets surpassed only by Japan's Nikkei 225 during the 1980s.
Several managers argue India lacks a clear AI angle and that earnings have been underwhelming. Reed Capital Partners, a Singapore multifamily office, dumped its entire India position about a month ago as it cut equity risk. "There isn't much going on for a good India story," said CIO Gerald Gan. "It is more the growth story that is withering away for India."
Funds at Janus Henderson Investors and Vantage Point Asset Management say they have reduced India exposure to zero over the past year or so. Speaking from Dubai, Gary Dugan, who heads the Global CIO Office, noted that many wealth managers have either cut India to underweight or exited to free up room for Taiwanese and South Korean tech, adding: "They don't see the same kind of risk of missing out in India given the headwind of a high oil price and weak currency." He estimated that roughly 30% of his firm's clients, spanning family offices and wealth managers, have fully pulled out.
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Domestic institutions have cushioned the blow with about $60 billion of net buying this year, according to BSE data. That support, plus momentum around the country's data center build-out, has kept small caps comparatively resilient. Morgan Stanley, meanwhile, says India is in a multi quarter growth upswing and, in its base case, projects the BSE Sensex will reach 89,000 by June next year, a 19% gain, with a bull case at 100,000. Even so, scrutiny is rising: the National Stock Exchange had to scale back its long awaited IPO this week after pushback on pricing.
After more than 12 years in charge, Prime Minister Narendra Modi's early wins on GST harmonization, real estate reform, and the bankruptcy code have not fully addressed what some managers see as the core challenge. According to Sat Duhra of Janus Henderson Investors, where he is a portfolio manager, "Modi came in. He did some positive things that were done very well and within a reasonable timeframe, such as GST harmonization, the real estate reform, the bankruptcy court, but that hasn't solved the real issue," and, "The issue is jobs, it's trying to build manufacturing, trying to gain the FDI." The long standing case for India's consumer and services engine is now competing with the lack of a meaningful AI pathway and heavy reliance on imported oil.
That oil sensitivity showed up after the US Iran war broke out. As stocks fell, the rupee hit a record low and remains one of Asia's weakest performers this year, even after India raised $127 billion from its diaspora to reinforce currency defenses. Union Bancaire Privee's senior economist for Asia, Carlos Casanova, said, "The result has been pressure on the current account balance and a weaker rupee. Currency depreciation can compound foreign investors' concerns as it erodes dollar returns, tightens local financial conditions at the margin, and raises questions about the durability of corporate margins,"
India's weight in MSCI's emerging markets index has slipped to about 11% from 16% a year earlier as it lags AI heavy North Asia. That lower index share gives benchmark huggers less reason to own India, which can reinforce outflows, as Dugan noted. For regular investors, the takeaway is simple enough to talk through over coffee: leadership in global markets is rotating toward tech rich economies, India is contending with higher relative prices and currency pressure, and locals are doing more of the heavy lifting. If you hold emerging markets, check what is actually inside the label, because where the index money flows is what shows up in your returns.
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