India-dedicated funds face persistent outflows despite rebound in Global Emerging Markets

The outflows from U.S.-domiciled India funds have eased, with just $15 million exiting this week—the lowest since January 2025. However, redemptions from European and Japanese funds remained elevated, with Luxembourg-based funds seeing $86 million in outflows, followed by Ireland ($59 million), the UK ($49 million), and Japan ($32 million).

India-dedicated funds continue to see sustained redemptions even as foreign investors increase allocations to other emerging markets, according to a report by Elara Capital. The latest data shows that India-focused funds witnessed another $270 million in outflows this week, following withdrawals of $370 million and $425 million in the previous two weeks, noted Sunil Jain, analyst at Elara capital in his Global Liquidity Tracker dated March 7. While the pace of redemptions has slowed, the broader trend remains negative.

"If not for the sustained pressure from India-dedicated funds, foreign flows into the country would have turned positive," Jain noted. Since October 2024, these funds have recorded cumulative outflows of $4 billion, with $3.2 billion withdrawn in 2025 alone.

The outflows from U.S.-domiciled India funds have eased, with just $15 million exiting this week—the lowest since January 2025. However, redemptions from European and Japanese funds remained elevated, with Luxembourg-based funds seeing $86 million in outflows, followed by Ireland ($59 million), the UK ($49 million), and Japan ($32 million).

Global EM flows turn positive, but not for India

While India continues to see outflows, foreign investors have used the recent correction in US markets to ramp up allocations elsewhere. Inflows into US funds expanded to a five-week high of $7.9 billion from $5.1 billion in the previous week. European funds also saw strong inflows for the third consecutive month, with $4 billion coming in this week and $12 billion over the past four weeks. "This marks the strongest streak of inflows into Europe since June 2021, as investors position for a breakout in the Euro Stoxx 50 index, which is trading near its highs from 2000," Jain noted.

The broader emerging market landscape is also seeing a shift, with inflows resuming after a four-month period of dollar carry unwinding. Notably, foreign inflows into Hong Kong funds surged to a record $1.6 billion, while China funds saw their highest inflows in five months at $926 million. Capital has also returned to South Korea, Taiwan, Brazil, Mexico, Indonesia, Thailand, Singapore, and Malaysia over the past three weeks.

In contrast, India remains the only major emerging market still experiencing outflows, though the pace has moderated. Outflows from Indian equities slowed to $113 million this week, significantly lower than the average weekly outflow of $460 million since the start of 2025.

India’s rich valuations relative to global peers continue to be a headwind for attracting fresh foreign interest. While other markets benefit from renewed global risk appetite, India remains an outlier struggling to regain sustained inflows, experts say.

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