The near-term picture, however, remains weak. Cameron Brandt, Director of Research at EPFR Global, said “India was among the group of markets… that did get hit quite hard,” adding that investors are rotating within emerging markets rather than exiting them altogether. Money is moving out of India and China-focused funds and into markets like South Korea, which is currently drawing strong inflows.
Elara Capital’s Global Liquidity Tracker, released on March 20 also pointed out that India-focused funds saw $2.4 billion of outflows between March 5 and 18. More broadly, “India-focused flows remain the weakest within EM,” with exchange traded funds accounting for nearly two-thirds of the selling.
This is part of a longer trend. As Nomura’s Managing Director and Head of Equity Research Saion Mukherjee, pointed out, foreign investors have been net sellers for a while now. “In the secondary market almost $25-30 billion of FII outflows” have been seen over the past two years.
“It [FII selling] started off with a really high valuation… then last year, it’s been about AI, right? I mean, starting off with India being not a AI play to being considered as an AI loser… the valuation threshold for FIIs are relatively lower. I think another five to 10% correction in the markets… makes the risk reward pretty favourable,” he said.
What is beginning to change now, though, is the backdrop to those outflows. Mukherjee described the recent move in the rupee as “a healthy adjustment,” arguing that a weaker rupee, along with softer valuations, could make India more attractive again. “The combination of the both sort of makes good case for FIIs to come back,” he said.
That view is starting to find some early takers. Mark Matthews of Bank Julius Baer said some long-time sceptics are beginning to relook at India.
“It’s not really an expensive market anymore. The forward P/E (price to earnings) ratio is below 20 times. And I know some people who have just been perennial India bears… they always felt it was too expensive. I’m noticing that they are now starting to get interested on India, because they’re seeing the currency has gone down so much, and stock market is re-rated though I wouldn’t call it a cheap level, but it’s not expensive anymore,” Matthews said.
For now, flows haven’t turned. Global investors are still reallocating, and India continues to see outflows. But the underlying drivers — currency, valuations and positioning — are shifting. If earnings hold up and global conditions stabilise, the groundwork for a comeback may already be in place.
First Published: Mar 25, 2026 2:05 PM IST
