Money returns EMs, gold ETF flows surge to ₹24,000 cr, equity inflows cool

Domestic gold ETFs saw a massive Rs 240 bn of inflow in January 2026, dwarfing the flows in previous months

Investor money is moving across asset classes in ways that suggest a growing search for safety, diversification, and short-term opportunities, according to a recent strategy note by Kotak Institutional Equities.

 

The report points to three simultaneous trends shaping markets in early 2026 — surging ETF flows into emerging markets, moderation in domestic equity mutual fund inflows, and record investments into gold ETFs.

 

Together, these trends highlight a shift in how investors are positioning portfolios amid uncertain global conditions.

 

Massive gold ETF inflows dominate January flows 

The most striking development is the surge in precious-metal investments.

 

Domestic gold ETFs attracted ₹240 billion in January 2026, far exceeding:

 

₹36 billion average monthly inflows in 2025

 

₹77 billion average monthly inflows in Q4-2025

 

This marks one of the strongest monthly inflows into gold ETFs on record and reflects growing investor interest in commodities as both diversification tools and potential hedges against uncertainty.

 

Globally, ETF investments into gold and silver have also risen sharply, reinforcing the trend.

 

Kotak notes that this surge likely reflects performance-chasing behaviour rather than a structural loss of confidence in financial systems, though continued strong gold demand could have broader macroeconomic implications for India.

 

Because gold imports represent an outflow of capital, large inflows into gold ETFs and physical gold could widen the current account deficit (CAD) and influence domestic liquidity conditions.

 

"The surge in investment into gold ETFs globally implies massive speculation in gold (along with silver) possibly; we are not sure if this is in lieu of the usual strong demand for physical gold or loss of confidence of a section of households in the modern monetary system, the foundation of modern economies. We assume it is the former, as the latter is too frightening to comprehend," said Sanjeev Prasad, MD & Co-Head, Kotak Institutional Securities. 

 

Emerging-market ETF flows rebound

 

Another important trend is the return of passive global money into emerging markets.

 

India has received around $1 billion of foreign ETF inflows per week over the past month, helping:

 

• Turn FPI flows positive in February 2026 ($1.9 billion inflows)
• After $3.3 billion of outflows in January

 

However, Kotak notes that active FPI inflows remain negligible, suggesting global investors are allocating money to EMs primarily through passive vehicles rather than stock-specific conviction. This pattern is consistent with flows chasing performance, as emerging markets have recently outperformed developed markets.

 

"The large inflows into EM ETFs after a period of strong performance of EMs show the usual pattern of flows chasing performance. India has got its fair share of EM ETF flows, which resulted in FPI flows becoming positive after months of outflows. We believe net active FPI inflows into India continue to be negligible," said Prasad. 

 

Equity mutual fund inflows moderate but remain strong

 

On the domestic side, equity mutual fund flows remain positive but have slowed.

 

Equity-oriented mutual funds saw ₹240 billion of inflows in January 2026, compared with:

 

₹292 billion average monthly inflows in 2025

₹276 billion average monthly inflows in Q4-2025

 

The slowdown has been most visible in:

 

• Small-cap funds
• Thematic funds
• Mid-cap funds

Sharp moderation in inflows into small-cap. and thematic funds

 

Small-cap. funds have delivered negative returns on aggregate over June 2024-December 2025

 

This comes after 5–6 quarters of weaker performance in these segments, suggesting investors are becoming more selective.

 

Meanwhile, the Indian equity market has remained largely range-bound for nearly two years, with mid-cap and small-cap fund NAVs showing limited gains over the period. 

Sectoral/thematic funds have delivered negative returns since December 2022

 

Asset allocation behaviour is evolving

 

Kotak suggests the combination of moderating equity flows and rising commodity investments could indicate that high-net-worth investors are diversifying into alternative assets, including precious metals.

 

Another emerging trend is the export of household savings through gold purchases, both financial and physical — effectively moving capital out of the domestic financial system.

 

The growing gap between:

 

Precious-commodity imports and Net FPI investment over the past 15–16 years highlights this shift.  "The recent sharp increase in flows into  EM equity ETFs and domestic gold ETFs imply high levels of speculation among investors possibly and interesting implications for the Indian economy and market. We can only speculate on the reasons and duration of such flows. India continues to export capital through various routes, including gold imports," said the report.  

Market outlook remains constructive

 

Despite the changing flow patterns, Kotak’s macro outlook remains stable.

 

Key estimates include:

 

Nifty earnings growth: 9.3% in 2026

 

Real GDP growth: 7.8% in 2026

 

Average CPI inflation: 2.1% in 2026

 

Nifty EPS estimate: ₹1,077

 

Nifty P/E: 24x in 2026

 

These projections suggest that while capital flows may fluctuate, the underlying economic and earnings environment remains supportive.  Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd