Foreign investors withdraw $12bn from India-focused funds since 2024 peak

Foreign investors have withdrawn close to $12 billion from India-focused funds since the market peaked in October 2024. This swift reversal wipes out nearly 60% of the roughly $20 billion that flowed into these funds between March 2023 and October 2024. For a market that had positioned itself as a primary emerging market destination, this scale of capital flight signals a fundamental shift in global risk appetite.

The 2026 calendar year has been particularly punishing, with $9 billion pulled in total. Of this, $7 billion exited long-only funds and $2 billion left exchange-traded funds. Geographically, the pain is highly concentrated. Luxembourg-based funds saw the heaviest redemptions at $3.5 billion, followed by the United States at $2.4 billion and Japan at $2.1 billion. Ireland stands out as the only major fund domicile to largely avoid the current round of selling, highlighting diverging European investor base behaviors.

The primary driver for this reallocation is the artificial intelligence trade. "Redemptions have accelerated since Jan'26 to fund the AI trade & momentum continues to remain weak," the report noted. Crucially, the nature of the AI investment is narrowing. "The AI trade is becoming concentrated in a few direct beneficiaries rather than the broader ecosystem," the report stated, explaining why broad-based funds in non-AI hubs are losing capital.

This narrowing AI focus is reshaping flows across Asia. Following an April-May correction, foreign capital has returned to dedicated South Korea and Taiwan funds. These markets house the semiconductor infrastructure central to the AI buildout. However, the report warns that this buying is occurring at a much slower pace than during the peak of the AI rally, indicating that investors are becoming more selective even within the technology hardware space.

The capital exiting India is not sitting idle but is actively rotating into developed markets. US equities attracted $27 billion in fresh inflows over the reported week, completely reversing the withdrawals seen over the previous two weeks. Europe also benefited, registering its first weekly inflow in nearly three months. This suggests investors are seeking the perceived safety and direct AI exposure of large-cap western markets.

Alternative assets are also catching spillover capital as sentiment broadens. "Gold funds recorded a modest inflow of $317mn, the first positive reading after $14bn outflows since Apr, while pressure on Silver funds has also eased over recent weeks," the report added. The return to precious metals points to an underlying demand for portfolio hedges, even as risk assets like US and European equities draw heavy inflows.