India inflows face momentum as renewed pressure hits focused funds; EM rotation strengthens on weak-dollar theme

Long-only strategies accounted for most of the withdrawals, contributing $182 million in outflows, while small-cap funds experienced their largest redemption in two months at $54 million.

Foreign portfolio flows into India lost momentum this week as renewed selling pressure from India-dedicated funds offset the broader strength seen across emerging markets, according to the Global Liquidity Tracker. According to the report, India recorded net inflows of $190 million, a sharp slowdown from $414 million the previous week, driven largely by $200 million of redemptions from India-focused vehicles.

The setback reversed the modest recovery of the past two weeks, during which India-dedicated funds had collectively added $185 million. Long-only strategies accounted for most of the withdrawals, contributing $182 million in outflows, while small-cap funds experienced their largest redemption in two months at $54 million. Japan- and Luxembourg-domiciled funds continued to exert notable selling pressure, underscoring the fragility of India-focused allocations even as broader EM enthusiasm persists.

Flows into India have been volatile over the past 18 months. Strong inflows immediately after the general election reflected the return of investors who had been waiting for political clarity. However, outflows began in October 2024 following the US election outcome and continued until April 2025, when the announcement of Trump’s tariffs prompted temporary stabilization. A brief spell of inflows between April and July 2025 was driven almost entirely by ETFs, in contrast to the longer-term trend since 2023 in which long-only funds had been the primary source of buying. Since July 2025, redemptions from India-dedicated funds have resumed, interrupted only by a few isolated weeks of relief.

Globally, emerging market flows remained resilient even as overall equity flows softened due to a slowdown in the United States. US inflows averaged just $1.8 billion this week, well below the $15 billion weekly average of the past three months and marking a second consecutive week of muted activity. In contrast, global emerging market funds recorded $2.8 billion of inflows, extending their uptrend for the fifth straight week as investors rotated toward EMs on expectations of a weaker US dollar. This shift toward risk assets in the emerging world also spurred significant allocations into commodity-related funds.

The report noted that China continued to draw stable but moderated foreign inflows and reached an important inflection point in its longer-term cycle. The country’s flow cycle bottomed in August 2024, and on a rolling 12-month basis, foreign inflows have turned positive for the first time since January 2024. Meanwhile, Brazil registered a six-month high in foreign inflows at $402 million, while Taiwan and South Korea also maintained strong momentum.

Commodity-linked funds saw a meaningful acceleration in activity. Inflows into commodity equity funds doubled to $742 million, while physical commodity funds attracted $3.9 billion, their strongest tally in seven weeks. Precious metal funds extended their recovery as well, drawing $4.4 billion and signaling a renewed upswing in the broader commodity complex following a brief consolidation phase during October and November 2025.