India-focused funds log steepest outflows in 2025, $1.8 bn in past 4 weeks

Global investors are pulling sharply out of India-focused equity funds, marking the steepest wave of redemptions in eight months, even as flows surge into China and Hong Kong in a dramatic reversal of the rotation trade that had dominated emerging markets through 2023–2024.

 

According to a report by Elara Capital, India-focused funds witnessed $1.8 billion in outflows over the past four weeks, the heaviest since January. Meanwhile, China funds attracted $3 billion and Hong Kong funds $4.5 billion, underscoring investor preference for North Asia in recent weeks.

 

The reversal comes on the heels of Donald Trump’s US presidential victory in October 2024, which has shifted investor sentiment. Since that turning point, India has seen $3.7 billion in outflows, while China has garnered $5.4 billion in inflows.

 

Elara observes that the recent trend is in a sharp contrast to the flow between March 2024 and September 2024, when India enjoyed $29 billion in cumulative inflows, while China suffered $26 billion in outflows.

 

“Among all the EMs, India flows remain the weakest. Of the recent $1.8 billion India redemptions, $1 billion came from ETFs and $770 million from active funds. Notably, inflows post the Trump tariff panic in April were concentrated in ETFs, while long-only funds have been under consistent redemption pressure since October 2024,” said the Elara note.

 

The pullback from major global asset managers is also weighing disproportionately on larger Indian equities, adding to near-term supply pressures. The redemptions have been especially heavy from global managers such as WisdomTree, Invesco, Schroder, Amundi, and Franklin India, with selling pressure concentrated in large-cap oriented strategies.

 

The selling pressure from global funds has been offset by strong buying support from domestic funds.

 

In a note this week, Nomura highlighted India has been falling out of favour in the EM basket.

 

According to an analysis by Nomura of 45 large EM funds, relative allocations to India fell by 110 basis points (bps) month-on-month in July, with as many as 41 funds reducing exposure. India is now the largest underweight (UW) market in EM portfolios, with allocations standing at a negative 2.9 percentage points relative to benchmark MSCI EM index.

 

In contrast, Hong Kong, China and South Korea have emerged as the key beneficiaries of regional rebalancing. Allocations to Hong Kong, China and South Korea increased 80 bps, 70 bps and 40 bps, reflecting a decisive rotation in foreign portfolios. By the end of July, 71 per cent of EM funds were underweight India, up from 60 per cent in June, Nomura said.