India Equity Outlook Downgraded: Foreign Funds Shift to Asia
By Market Desk
India’s equity outlook downgraded for the third quarter as foreign investors reallocate funds to other Asian markets, impacting Indian shares negatively.
India’s equity outlook has been downgraded for the third consecutive quarter, according to a Reuters poll of equity analysts. This revision stems from foreign funds increasingly seeking value and AI-related opportunities across other Asian markets.
Indian shares have seen a decline of over 7% this year, positioning them for their weakest annual performance in more than a decade. This trend contrasts sharply with solid gains reported by some regional counterparts.
Key Market Figures
- Nifty 50 and BSE Sensex forecasts for end-2026, mid-2027, and end-2027 are at their lowest median levels since polling began for these periods.
- Overseas investors sold approximately 2.4 trillion rupees (equivalent to $25.1 billion) worth of Indian shares this year.
- The rupee has depreciated by 6% against the dollar this year, making it one of Asia’s worst-performing currencies.
- Crude oil prices are trading near $90 per barrel, eroding dollar returns for foreign investors.
- Domestic systematic investment plans contributed over 319.61 billion rupees in July.
Foreign Fund Exodus and AI Exposure Gap
Foreign investors are favoring markets like Japan, South Korea, Taiwan, Thailand, Malaysia, and the Philippines, which offer more attractive valuations or direct exposure to the global AI narrative. These significant outflows have directly impacted the rupee’s performance.
Despite official data showing India’s economy grew nearly 8% in previous fiscal years and Nifty 50 companies reporting an 18% profit growth in the June quarter—the fastest in ten quarters—the market lags. Analysts attribute this to India’s limited exposure to the global AI story, suggesting economic data does not fully reflect underlying investment sentiment.
Domestic Inflows Provide Cushion
More than 70% of analysts do not anticipate a market correction of 10% or more in Indian stocks within the next three months. Optimism remains for future earnings improvements, which could bolster the market.
Domestic investors have played a crucial role in mitigating a sharper market decline. Their consistent inflows through systematic investment plans have provided essential support against the substantial foreign selling pressure.