EPFR Global's Director of Research Cameron Brandt reports that while India continues to see consistent outflows, the pace has moderated in recent weeks with early signs of money returning to software and services-focused funds. As per CNBC TV18, Brandt noted that "software and services are no longer getting beaten up, and funds dedicated to them have seen quite a bit of fresh money in recent weeks," which represents a positive indicator given how investors view India's investment case. The recovery is particularly notable as India is much more associated with software and services rather than the pure AI story, making this thaw in technology-focused funds particularly significant for the market's prospects.
Foreign institutional investors have sold Indian equities on nearly 150 of the last 240 trading sessions, representing approximately three out of every five market days over the past year. According to reports from The Economic Times, this sustained selling pattern is not attributed to isolated events such as elections, earnings misses, or geopolitical developments, but rather reflects a sustained reassessment of India by global money managers. The intensity of selling has increased sharply in recent months, with the biggest single-day outflow occurring on April 2, 2026, when FIIs sold a net ₹19,837 crore worth of Indian equities. This was followed by a cluster of heavy selling days in March, including ₹11,299 crore on March 24, ₹10,966 crore on March 20, and ₹10,827 crore on March 16, with another major selloff on May 21 last year, when foreign investors pulled out over ₹10,000 crore in a single session.
The selling intensity has been particularly pronounced since West Asia tensions escalated earlier this year, pushing crude oil prices sharply higher and reviving concerns about India's macroeconomic stability. As reported by The Economic Times, foreign investors have pulled out more than ₹1 lakh crore from Indian equities since the conflict intensified, while the Nifty has corrected over 9% from its recent highs. For a country that imports more than 80% of its crude requirement, sustained rises in Brent crude increase India's import bill, widen the current account deficit, and create inflationary pressure across the economy. When oil moves toward $100-115 per barrel, as it has in recent weeks, foreign investors reassess not just earnings forecasts but the broader macro picture.
The pressure is visible in the currency market as well, with the rupee recently slipping beyond 95 against the US dollar, touching record lows. According to The Economic Times, the US 10-year Treasury yield moving toward 4.5% has significantly changed the risk-reward equation for emerging markets. When investors can earn close to 4.5% in dollar assets with virtually no credit risk, they become more selective about paying premium valuations in emerging markets. India, despite the recent correction, still trades at a premium compared with most major Asian peers, making global investors compare Indian valuations with markets such as South Korea, Taiwan, and parts of China where earnings multiples are lower. For dollar-based investors, the rupee's weakness creates another problem, as gains in local currency terms can be reduced or erased once translated back into dollars.
Recent flow data supports the emerging recovery trend, with Elara Capital's Global Liquidity Tracker showing India flows have started to stabilize after a prolonged phase of selling. As reported by CNBC TV18, the data indicates a small net inflow of about $106 million between April 16 and 22, after nearly $5 billion of outflows over the previous six weeks since March 5. More importantly, the pressure from India-focused funds has eased sharply, with weekly outflows dropping from around $1.2 billion at the peak to about $180 million. However, the recovery remains uneven, with dedicated India strategies continuing to see outflows, particularly from long-only funds, even as exchange-traded funds (ETFs) have begun to attract inflows. There are also early signs of stabilisation in US-domiciled funds, which had been one of the biggest sources of selling.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, explains that the AI-driven shift in global capital is becoming an important force behind FII behaviour. As reported by The Economic Times, he believes the continuing momentum in the AI trade implies that FIIs will continue to sell in India, potentially keeping largecaps under check with activity moving significantly to the broader market. Brandt from EPFR Global confirms that "the AI story has proved incredibly resilient over the past two months, greatly to the benefit of Korea rather than India in the emerging Asia space." The global AI trade continues to overpower geopolitical anxieties, helping risk appetite stay intact despite uncertainty around US policy and tensions in West Asia. This helps explain an unusual market trend where foreign investors continue to exit while several smallcap and midcap stocks deliver strong gains, supported by domestic institutional investors and retail participation.
