Global Funds Pull $25 Billion From Indian Stocks, Citing High Valuations

Global money managers are significantly reducing their exposure to Indian equities, with some funds cutting their allocation to zero, according to a recent Bloomberg report. Overseas funds have withdrawn a net $25 billion from Indian stocks so far this year, causing foreign portfolio ownership of companies on the National Stock Exchange to fall to a 17-year low.

Drivers of the Outflow

The investor pullback is driven by several key factors, primarily elevated valuations and a shift in capital toward markets with greater exposure to the artificial intelligence boom. Indian stocks are trading at a significant premium compared to regional peers.

• The Nifty 50 index trades at approximately 17.6 times forward earnings.
• This represents a 77% valuation premium over the broader MSCI Emerging Markets Index.
• In contrast, markets like Taiwan and South Korea are attracting capital due to their strong positions in the global AI supply chain.

Fund managers at Reed Capital Partners, Janus Henderson Investors, and Vantage Point Asset Management have all reportedly reduced their India exposure to zero over the past year, citing these concerns along with weak corporate earnings.

Market and Macroeconomic Impact

Ad

The sustained foreign selling has weighed on Indian market performance and its standing in global indices. The Nifty 50 is currently on pace to end a decade-long streak of annual gains. Reflecting the diminished foreign interest, India's weighting in the MSCI Emerging Markets Index has fallen from 16% a year ago to about 11%.

Broader macroeconomic headwinds have compounded investor concerns. India's reliance on energy imports makes it vulnerable to higher oil prices, which pressure its current account. The Indian rupee has also weakened, hitting a record low and ranking among the worst-performing currencies in Asia this year.

Domestic Buyers Provide Support

While foreign investors are selling, domestic buyers have stepped in to provide a significant counterbalance. According to data from the BSE, local investors have purchased a net $60 billion worth of stocks this year, absorbing much of the overseas outflow.

Despite the current bearish sentiment from some global funds, not all outlooks are negative. Morgan Stanley remains bullish on India, forecasting that the country will benefit from a multi-quarter economic growth upcycle. The investment bank's base case sees the BSE Sensex index rising 19% to 89,000 by June 2027.