Global liquidity is booming, but India sees its 11th week of FPI outflows

The pressure on India flows continues to come primarily from Luxembourg-domiciled funds, with cumulative outflows of $1bn over the past 10 weeks,

As global markets flash early signs of risk aversion, a new Elara Capital report shows that India continues to diverge sharply from the broader emerging-market (EM) sentiment—even as EM flows hit multi-month highs and global equity indices test historic breakout zones. The report signals a complex, two-track market environment where India remains resilient domestically but is quietly losing favour among foreign investors. 

 

EM Flows Are Roaring Back—Except Into India

 

Global equity fund flows remain strong for the tenth consecutive week, with $15 billion of buying from US domestic funds fully offsetting a $3.3-billion foreign outflow from US equities. Meanwhile, EMs recorded a sharp revival:

 

Global Emerging Market (GEM) funds saw $3.1 billion of inflows, the best in two months.

 

Flows surged into China, Taiwan (a six-month high), South Korea and Brazil, marking the strongest EM risk appetite since early 2021.

 

But India sits on the opposite end of this revival

 

Despite the Nifty and Sensex returning to record levels, India logged only $148 million of net inflows, all thanks to GEM allocations. India-dedicated funds, however, saw their 11th straight week of outflows, losing another $208 million, with Japan- and Luxembourg-domiciled funds driving redemptions. Cumulatively, these two pools alone have pulled out over $2.1 billion in recent months. 

 

This makes India one of the few major EMs not participating in the global liquidity surge.

 

Why India Is Diverging

 

The report underscores a critical point: India is no longer trading in sync with EM momentum. Three factors stand out:

 

1. Valuations remain elevated: Multiples for Indian large caps and SMIDs continue to be priced at premiums vs peers, prompting global allocators to rotate into cheaper EMs.

 

2. Domestic participation is offsetting FPI weakness: Strong SIP flows and retail inflows are giving Indian indices a “local liquidity floor,” but the absence of foreign participation introduces asymmetry—especially during global risk-off cycles.

 

3. Sector-specific positioning is out of step: India’s sectoral leadership (financials, manufacturing, domestic cyclicals) currently differs from the tech-heavy EM rally led by China–Taiwan–Korea.

 

"Despite Nifty and Sensex returning to earlier highs, foreign investor sentiment remains muted. India recorded a modest net inflow of $148mn, entirely due to GEM fund allocations, while India-dedicated funds saw their 11th consecutive week of redemptions, with outflows of $208mn (vs. $230mn prior week). The pressure continues to come primarily from Luxembourg-

domiciled funds, with cumulative outflows of $1bn over the past 10 weeks, and Japan-domiciled funds, which have now seen 18 consecutive weeks of redemptions totalling $1.1bn," noted the report.

 

A Warning Sign: Junk Bonds Are Flashing Risk-Off

 

Elara points to one of its most closely watched global indicators—the NAV line of global high-yield (junk) bond funds. The NAV has returned to its October 2021 highs, from which the last major global equity selloff began. Since then, these funds have seen six straight weeks of outflows amounting to $9 billion, marking the first risk-off signal in global credit markets in months.  

 

Historically, junk bond weakness has preceded market corrections in:

 

• 2021, just before the global tech meltdown
• 2018, ahead of the US Fed–driven equity correction
• 2008, ahead of the Lehman crisis (as indicated on the chart on page 2 of the report)
• If this pattern repeats, global equities may be nearing an inflection point.

The Elara Capital tracker highlights a split-screen global market: EMs are seeing renewed inflows and optimism, while India is quietly slipping out of favour among global investors—even as domestic money holds markets near all-time highs. With junk bonds flashing early warning signs and global flows at a technical breakout zone, the next quarter may test India’s resilience far more than recent months.