India sees 5th month of negative flows, US accounts for 50% of outflows

India’s capital flows have remained negative for the fifth consecutive month, although the pace of outflows has slowed. The latest data analysed by Elara Capital reveals a modest weekly outflow of $177 million, marking the smallest weekly outflow since January 2025. However, a significant pressure point continues to be the redemption from India-dedicated funds, which saw a substantial outflow of $370 million this week, pushing the total calendar year-to-date (CYTD) outflow to $2.9 billion.

 

A deeper look into the redemption trends reveals that both exchange-traded funds (ETFs) and long-only funds are experiencing strong outflows. ETFs saw redemptions of $1.3 billion, while long-only funds faced $1.6 billion in outflows. This combined outflow underscores the broader trend of investor withdrawal from India-focused investment vehicles.

 

 

The largest share of these outflows is concentrated in the US, which accounts for approximately 50% of the total outflows from India-dedicated funds, amounting to $1.45 billion. Other notable regions contributing to the redemptions include Ireland ($530 million), Luxembourg ($365 million), Japan ($335 million), and the UK ($300 million). These regions continue to show significant outflows, reflecting broader global investor sentiment. 

 

Another factor contributing to the pressure on India’s capital flows is the ongoing weakness of the Indian rupee, which is largely driven by the unwinding of dollar carry trades. As the US dollar strengthens, India’s currency continues to face headwinds, impacting investor confidence and contributing to the outflow trend.

 

"50% of total outflows from India dedicated funds are from US followed by Ireland ($530mn), Luxemburg ($365mn), Japan ($335mn) & UK ($300mn). India currency continues to remain under pressure on back of Dollar carry unwind trade from India," said Sunil Jain of Elara Capital.

 

In contrast to India's persistent outflows, foreign fund flows into US markets have continued for 21 weeks in a row, starting from October 2, 2024. However, the pace of inflows has begun to slow, with weekly inflows averaging $5 billion over the past four weeks, down from $8 billion per week since October 2024. Despite this slowdown, the US remains the most preferred market for foreign investors. The stability of the US market and the country’s economic fundamentals continue to attract global capital.

 

Meanwhile, European markets have seen a significant surge in foreign inflows, particularly into the Euro Stoxx 50 index, which is trading near its highest levels since 2000. Investors appear to be positioning themselves for a major breakout in European equities, as evidenced by inflows totaling $1.5 billion this week and $8 billion over the past three weeks. This marks the strongest streak of inflows into Europe since June 2021, led by strong performances in Germany, France, Switzerland, and the Netherlands.

 

Elsewhere, foreign fund flows are stabilizing across most emerging markets (EMs) with the exception of India. The unwind of the dollar carry trade has paused over the last two weeks, and slower foreign inflows have been seen in markets such as Taiwan, South Korea, Brazil, Singapore, and Mexico. In contrast, foreign funds have begun selectively entering China over the past four weeks, signaling a cautious but positive shift in sentiment towards Chinese equities.