Foreign Ownership on NSE Slumps to 17-Year Low as Global Funds Pull Net $25 Billion

Global institutional investors are sharply reducing their exposure to Indian equities, with several prominent asset managers paring their allocations down to zero. The persistent sell-off has driven foreign portfolio ownership of companies listed on the National Stock Exchange of India (NSE) to a 17-year low, marking a stark reversal for a market that long ranked among the world’s most favored emerging-market destinations.

According to data compiled by Bloomberg, foreign funds have withdrawn a net $25 billion from Indian equities this year, redirecting capital toward tech-heavy markets such as Taiwan and South Korea. A recent Bank of America investor survey now ranks India as the least-favored market in Asia, weighed down by valuation concerns, softer corporate earnings, and the absence of a dominant artificial intelligence (AI) theme.

Funds Cut India Exposure to Zero

A growing cohort of global asset managers has decided to completely exit the $5.1 trillion Indian equity market. Singapore-based multifamily office Reed Capital Partners recently liquidated its entire Indian equity portfolio.

"There isn't much going on for a good India story," said Gerald Gan, Chief Investment Officer at Reed Capital Partners. "It is more the growth story that is withering away for India."

Gan’s stance mirrors actions across other institutional desks. Money managers at Janus Henderson Investors and Vantage Point Asset Management have also cut their Indian portfolio exposure to zero over the past year.

The AI Shift and Valuation Headwinds

While India’s robust gross domestic product expansion and state-led infrastructure spending served as major magnets for global capital in recent years, fund managers are increasingly pivoting to markets benefiting directly from the generative AI boom.

Even after recent consolidations, Indian equities trade at approximately 17.6 times forward earnings. While slightly below their historic averages, the benchmark NSE Nifty 50 still commands a 77% valuation premium over the broader MSCI Emerging Markets Index.

Key factors driving foreign institutional outflows:

• Lack of an AI hardware and chip narrative: Investors seeking exposure to semiconductor manufacturing and hardware supply chains have rotated substantial liquidity toward Taiwan and South Korea.
• Sluggish corporate earnings: Indian corporate financial results over recent quarters have delivered lukewarm growth, failing to justify elevated valuation multiples.
• Macro headwinds: Persistent high crude oil prices and currency depreciation against the US dollar have eroded real returns for foreign funds.
• Shrinking benchmark weight: India’s allocation in the MSCI Emerging Markets Index has dropped to approximately 11%, down from 16% a year ago, triggering automatic reductions from index-tracking passive funds.

"Many wealth managers have taken India back to underweight or completely out as they are more concerned about covering the increased weighting of tech plays in Taiwan and South Korea," said Gary Dugan, Chief Executive Officer at Dubai-based Global CIO Office. "They don't see the same kind of risk of missing out in India given the headwind of a high oil price and weak currency."

Domestic Inflows Counter Foreign Retreat

The persistent foreign institutional investor (FII) selling has left the Nifty 50 languishing near its mid-2024 levels, putting the benchmark on track to snap a decade-long streak of consecutive annual gains.

However, unlike prior cycles where foreign outflows triggered deep domestic market sell-offs, Indian equities have shown relative resilience due to sustained domestic liquidity. Domestic institutional investors (DIIs), supported by record inflows through retail Systematic Investment Plans (SIPs) and mutual funds, continue to absorb foreign selling pressure.

Nonetheless, analysts caution that sustained foreign capital flight limits the market's upside and exerts downward pressure on the rupee, underscoring the urgent need for earnings acceleration and durable foreign direct investment to support India's broader economic expansion.

Tags: NSE Nifty 50 MSCI Emerging Markets Index Bank of America Janus Henderson Investors Vantage Point Asset Management BSE Sensex