Are India-focused funds showing early signs of recovery after 11 weeks?

After months of persistent foreign selling and heavy redemptions, India-focused investment funds may be showing early signs of stabilisation. Recent data suggests that while foreign investors continue to pull money out of Indian markets, the pace of outflows has slowed considerably, raising questions over whether the worst phase of selling pressure may be nearing an end.

According to Elara Capital’s latest Global Liquidity Tracker, India recorded outflows of $702 million in May, significantly lower than $1.5 billion in April and the sharp $3.5 billion outflow recorded in March. The data points to moderating pressure after a period of intense foreign fund withdrawals from Indian equities.

Signs of stability

One of the more notable developments in the report is the emerging stability in India-focused investment funds. These funds had experienced 11 consecutive weeks of outflows totaling nearly $6 billion, reflecting weak global sentiment and changing investor preferences. However, according to the report, fund flows have stabilised over the past two weeks, potentially indicating a shift in investor behaviour.

While it may be premature to call this a full recovery, easing redemptions suggest that investor concerns toward India could be becoming less severe.

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Away from India

The outflows from India did not happen in isolation. Since April 2025, global investors had increasingly shifted capital toward markets viewed as beneficiaries of major investment themes. Countries such as South Korea and Taiwan attracted inflows tied to artificial intelligence-related opportunities, while Brazil benefited from enthusiasm surrounding commodity-linked trades. This global rotation came largely at the expense of India and partially China.

The report suggests that global investors had redirected capital toward sectors and regions where returns appeared stronger in the short term.

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ETF flows

Despite pressure on active fund strategies, passive investments are helping cushion the impact. Elara noted that while long-only funds continue to face selling pressure, ETF inflows are increasingly offsetting a large part of those outflows.

This distinction may be important because it suggests that some investors are continuing to maintain exposure to India through passive allocation strategies rather than exiting entirely.

Global rotation trade

Signs are also emerging that the global leadership trade that drove capital away from India could be losing momentum. South Korea recently saw substantial outflows, while Taiwan has begun witnessing weaker flow trends. Brazil too recorded its largest redemption since late 2024.

For India, these developments could prove significant. If global rotation slows and foreign fund pressure continues easing, India-focused funds may gradually regain stability. While analysts caution that it is still too early to declare a reversal, the recent moderation in outflows suggests markets could be entering a less volatile phase.

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