NewsGlobalIndia Becomes Largest Underweight Market for EM Investors as FIIs Withdraw Rs 1.2 Lakh CroreIndia Becomes Largest Underweight Market for EM Investors as FIIs Withdraw Rs 1.2 Lakh Crore
Foreign institutional investors (FIIs) have significantly reduced their exposure to Indian stock markets, withdrawing approximately Rs 1.2 lakh crore. Nomura's analysis reveals that 71% of emerging market (EM) funds are now underweight on India, up from 60% previously. EM investors decreased their relative allocations to India by 1.0 percentage point month-on-month in July. Investors are reallocating funds to markets like Hong Kong/China and Korea. The Sensex and Nifty have gained less than 2% over the past year, while India Inc reported its fifth consecutive quarter of low single-digit earnings. FII sales continued in recent months, with over Rs 21,000 crore withdrawn in August and Rs 17,741 crore in July. Factors contributing to this outflow include geopolitical tensions, weak corporate earnings, potential US tariffs on Indian exports, and investors shifting focus to markets benefiting from the AI cycle and policy reform expectations.
*this image is generated using AI for illustrative purposes only.
Foreign institutional investors (FIIs) have significantly reduced their exposure to Indian stock markets, withdrawing approximately Rs 1.2 lakh crore. This substantial outflow has resulted in India becoming the largest underweight market in emerging market (EM) investors' portfolios, according to recent analysis.
Nomura's Analysis Reveals Shifting Investor Sentiment
Nomura's latest report highlights a growing trend of EM funds reducing their allocations to India. Key findings include:
- 71% of EM funds are now underweight on India, up from 60% previously
- EM investors decreased their relative allocations to India by 1.0 percentage point month-on-month in July
- 41 out of 45 funds reduced their India allocations
Reallocation of Funds
As investors pull back from India, other markets are seeing increased interest:
| Market | Allocation Increase |
|---|---|
| Hong Kong/China | 0.80 percentage points |
| Korea | 0.40 percentage points |
Indian Market Performance and Corporate Earnings
The withdrawal of FII funds coincides with subdued performance in Indian markets:
- The Sensex and Nifty have gained less than 2% over the past year
- India Inc reported its fifth consecutive quarter of low single-digit earnings in the June quarter
Recent FII Activity
The trend of FII withdrawals has continued in recent months:
| Month | FII Sales (in Rs Crore) |
|---|---|
| August | Over 21,000 |
| July | 17,741 |
Factors Contributing to FII Withdrawal
Several factors are attributed to the significant outflow of FII funds:
- Geopolitical tensions
- Weak corporate earnings
- Potential 50% US tariffs on Indian exports
- Investors shifting focus to markets benefiting from the AI cycle and policy reform expectations, such as China, Korea, and Taiwan
This shift in investor sentiment poses challenges for the Indian market, as it grapples with maintaining its attractiveness amidst global economic uncertainties and competitive pressures from other emerging markets.
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