Investor rush to EM, gold ETFs fuel speculation concerns, say analysts

A sharp rise in flows into emerging market equity and domestic gold exchange-traded funds (ETFs) suggests elevated levels of investor speculation, analysts at Kotak Institutional Equities noted, reflecting a shift in portfolio allocation.  

Gold ETFs in January 2026 came into focus earlier this month, after data showed that net inflow into this category hit nearly ₹24,039.96 crore, double the amount invested during December 2025. The January inflow in Gold ETFs exceeded the net investment in equity schemes last month, which stood at ₹24,028.59 crore, AMFI data showed. 

Sanjeev Prasad, an analyst at Kotak Institutional Equities, along with two others, in a note on February 12, said the sharp rise in global investments into gold ETFs points to a speculative activity in gold, and possibly silver. 

The brokerage said it is unclear whether the surge reflects a shift away from the usual strong demand for physical gold or signals a loss of confidence among a section of households in the modern monetary system, which underpins modern economies. Kotak Institutional Equities said it assumes the former explanation, as the latter would be far more concerning. 

Analysts noted that continued large inflows into gold ETFs, and the consequent purchase and import of gold, along with sustained physical gold imports, could pose challenges to India’s current account deficit (CAD). 

The brokerage added that any reversal in recent FPI inflows back to outflows may weigh on India's balance of payments. It further cautioned that a widening CAD combined with capital outflows could complicate reserve money creation, domestic liquidity conditions and deposit growth.

Global flows chase returns

The report said its analysis of recent capital flows into EM shows a sharp rise in overall inflows, with an even steeper increase in ETF allocations. The brokerage noted that the strong inflows into EM ETFs have followed a period of robust performance, reflecting the typical pattern of flows chasing returns. 

India has received its fair share of EM market ETF inflows, leading to foreign portfolio investor (FPI) flows turning positive after several months of outflows. However, Kotak Institutional Equities believes that net active FPI inflows into India remain negligible. 

Kotak Institutional Equities said its analysis of recent equity flows into domestic mutual funds indicates a moderate slowdown in overall equity fund inflows, along with a sharp deceleration in small-cap and thematic fund allocations. 

According to Kotak Institutional Equities, the slowdown suggests either the typical pattern of investors chasing performance, or the lack of it, or that high-net-worth investors (HNIs) may be shifting towards alternative avenues of investment or speculation, such as precious commodities. 

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