Foreign investors pull $244 mn from India funds, $2.3 bn gone since July

India's appeal to foreign investors is fading fast as redemptions mount - $244 million exited this week, taking total outflows since July to $2.3 billion

Global investors are pulling money out of India at an alarming pace, with $244 million in outflows this week alone, extending the second major redemption wave since July that has already sucked $2.3 billion from India-focused funds, according to a new report by Elara Capital.

The exodus marks the sharpest drawdown since the $4.4 billion rout between October 2024 and March 2025.

Large-caps hit hardest

The brunt of the latest selloff has been borne by large-cap funds, which have seen $2 billion in withdrawals during the current phase. By comparison, mid- and small-cap funds have largely escaped the carnage, with redemptions of just about $20 million each.

Geographically, the withdrawals were led by US-based funds ($1 billion), followed by Luxembourg ($765 million) and Japan ($365 million), signalling a broad-based investor retreat.

"Within the current phase, large-cap funds have borne the brunt with $2bn outflows, while mid- and small-cap funds saw limited redemptions of $20mn each. The largest withdrawals since Jul ’25 came from US-based funds ($1bn), followed by Luxembourg ($765mn) and Japan ($365mn)," said the report.

Rotation to China

At the heart of the trend is a decisive shift in global emerging market (GEM) portfolios. India’s allocation in GEM funds has slid to 16.7%, the lowest since November 2023, after peaking at 21% in September 2024. Meanwhile, China’s share has surged to 28.8%, reflecting a strong pivot by active managers.

“Global managers are booking profits in India and redistributing capital towards China, where valuations look attractive again,” said a Mumbai-based fund strategist.

Global flows tell a different story

While India faces sustained outflows, US equity funds attracted $10.5 billion this week, though inflow momentum has moderated since the Trump administration’s tariff moves in April. Domestic US funds, however, saw redemptions of $2.2 billion.

Elsewhere, Precious Metal funds drew $13.5 billion, the third-largest weekly inflow on record, more than double last week’s tally. Commodity funds extended their winning streak to five weeks, the longest rally since 2020, while Global Junk Bond funds continue to surprise with steady inflows, even as NAVs climb back to October 2021 highs.

What it means for investors

For Indian investors, the sustained exodus highlights the volatility that global capital flows can inject into domestic markets. With India’s allocation in GEM portfolios now at multi-year lows, short-term market swings could intensify.