India faces capital cold snap in largest fund retreat since January

EMs synchronised in capital flight as tariff storm clouds darken

India saw steep withdrawals from global funds last week, totalling $632 million — the largest since January 15. Nearly two-thirds of this, or $418 million, came from India-focused funds, marking the biggest outflows since February 19, according to Elara Capital.

   

This is the second straight week of heavy redemptions, interrupting a previous streak of steady inflows. Over the past five weeks, India-focused active funds have recorded cumulative withdrawals of $362 million.

   

Exchange-traded funds (ETFs) tracking Indian equities also faced outflows of $456 million over the past two weeks.

   

The biggest drains came from iShares MSCI India ETF ($120 million), Franklin FTSE India ETF ($48 million), WisdomTree India Earnings Fund ($45 million), and Schroder International Selection Fund Indian Equity ($34 million). These popular ETFs, known for easy Indian market access, are seeing withdrawals amid concerns over US trade tariffs and sluggish corporate earnings. Beyond ETFs and global funds, Indian markets face selling pressure from other foreign portfolio investors.

   

Last week, the benchmark Sensex and Nifty posted their sixth straight weekly decline — the longest losing streak since the week ending April 3, 2020.

   

Elara Capital highlighted that emerging markets (EMs) are enduring a synchronised wave of redemptions, echoing the post-October 2024 US presidential election period.

   

Last week, 86 per cent of EMs recorded simultaneous foreign fund outflows, reflecting a global capital rotation to the US and UK markets. EM withdrawals totalled $3.6 billion, with UK- and US-based funds each responsible for roughly $1 billion.

   

Among the largest EM outflows were China ($723 million), India ($632 million), Taiwan ($381 million), South Korea ($155 million), and Brazil ($133 million).

   

Global equity markets also reversed sharply last week, with net outflows from global equity funds hitting $41.7 billion — the biggest weekly outflow relative to assets under management in 30 months. This downturn was mainly due to sizeable withdrawals from US equities by major foreign funds.

   

US stocks alone accounted for $27.8 billion in outflows. The BlackRock ACS US Equity Tracker Fund recorded withdrawals of $28.5 billion, while the SPDR S&P 500 ETF and iShares Russell 2000 ETF saw redemptions of $5.6 billion and $1.7 billion, respectively. Overall, foreign investors pulled about $35 billion from US equities, the largest weekly withdrawal since August 2011, following S&P’s historic downgrade of US debt.

   

This repositioning reflects growing uncertainty over the fallout of US tariffs on global growth. Experts say the widespread withdrawals reveal heightened investor caution amid shifting economic sands and currency swings. Capital is flowing back to traditional safe havens like the US and UK amid EM turbulence, they added.