Foreign Capital Surge Reversal: 55% of Post-2023 Inflows in India Plummet as Global Money Races to U.S. AI Giants

Foreign Capital Surge Reversal: 55% of Post-2023 Inflows in India Plummet as Global Money Races to U.S. AI Giants​

India-focused equity funds are facing a sharp wave of foreign outflows, with investors pulling out $8.5 billion in 2026. This movement signifies a significant reversal trend, encompassing more than half of the capital inflows that were witnessed across the country during the March 2023 to October 2024 period.

According to Elara Securities’ Global Liquidity Tracker, most of these substantial redemptions originated from funds domiciled in Japan and Luxembourg. The brokerage noted that these accelerated withdrawals highlight a global rotation where capital is being redirected towards AI-linked opportunities concentrated in Taiwan and South Korea.

Capital Rotation Driven by U.S. Tech and Dollar Surge​

The outflow pressure on India comes amidst an unprecedented rally in U.S. equities. These markets attracted $120 billion in inflows during the latest week alone, driven largely by exchange-traded funds (ETFs).

Elara Securities points to the dollar index surging to a one-year high as investors increasingly position themselves for a “higher-for-longer” interest-rate environment. This macroeconomic shift, combined with concentrated bets on U.S. technology companies benefiting from the AI boom, is fueling this trend.

Significant investment was channeled into key sectors. Nearly $50 billion of the inflows went into three ETFs benchmarking the S&P 500. Furthermore, US mid-cap ETFs attracted a record $20 billion, while US small-cap ETFs saw an inflow of $12.3 billion—the largest since June 2007.

Emerging Market Trends and Divergence​

The report also tracked broader emerging market trends, noting that although redemptions continued in this category, the pace slowed to $570 million from approximately $3 billion recorded in each of the previous two weeks.

Global emerging market funds are now increasingly functioning as a proxy for the AI value-chain trade. This is particularly evident as South Korea and Taiwan currently constitute around 52% of the benchmark emerging market index.

Country-level flows show a notable divergence, however. Both South Korea and Taiwan saw positive foreign inflows after six weeks of weakness, recording $1.3 billion and $600 million, respectively. Conversely, India registered outflows of $440 million, while China recorded redemptions of $1.7 billion.

Commodity And Precious Metal Flows Slowing Down​

In other markets, the trend among precious metals funds continues to be a downward one for investors. Outflows from this category rose to a 12-week high amounting to $3 billion.

Cumulatively, the amount withdrawn from precious metals since March has reached $18 billion, as per Elara’s findings.

While the focus remains heavily on technology hubs, Brazil and Mexico—both nations that benefited greatly from the commodity and AI rally over the past year—also continued to experience redemptions in their respective markets.