Reuters reported on the 27th that foreign investors have withdrawn more than $17 billion from the Indian stock market this year, reaching a multi-year low, which contrasts sharply with the net inflow of $20 billion in foreign funds in 2023. This has made India the most affected market for foreign portfolio investment outflows in Asia. The Sri Lanka Daily News reported on the 27th that India is increasing financial sector reforms to stabilize foreign investment. These measures aim to ease foreign capital entry, expand credit channels, and encourage corporate borrowing to alleviate concerns about the impact of U.S. tariff policies on the Indian economy.
"Global investors are withdrawing from India at an astonishing pace."
The Business Standard reported that a report released by "Ira Capital" company showed that global investors are indeed withdrawing from India at an astonishing pace. Regionally, the largest withdrawals since July were from U.S. funds (1 billion dollars), followed by Luxembourg (765 million dollars) and Japan (365 million dollars), indicating a general withdrawal by investors. The core of this trend is the shift in global emerging market portfolios. The allocation of India in global emerging market funds has dropped to 16.7%, the lowest level since November 2023, while it reached a peak of 21% in September 2024. At the same time, China's share surged to 28.8%, reflecting a strong shift by active fund managers. For India, the continuous capital outflow highlights the volatility that global capital flows may bring to the domestic market. Given that India's allocation in the venture capital portfolio is currently at its lowest level in years, short-term market fluctuations may intensify.
"Foreigners are selling Indian stocks." Bloomberg previously reported that global investors are withdrawing from the Indian stock market. After U.S. President Trump announced tariffs on multiple countries in April, India became one of the first rebounding markets, attracting investors who viewed India as a safe haven amid global trade tensions. However, as the U.S. imposed a 50% tariff on Indian goods and significantly increased H-1B visa fees, market concerns gradually deepened.
Reuters analyzed that due to concerns over slowing earnings in export-oriented industries and macroeconomic prospects, the speed of foreign capital outflows from the Indian stock market accelerated after the imposition of tariffs. Tariffs damage portfolio flows, affect economic growth, and widen India's trade deficit.
The Times of India stated that changes in the U.S. immigration department's policy on H-1B temporary work visa applications have significantly impacted several Indian software and service outsourcing companies, requiring re-evaluation of staffing costs and project schedules, leading to pressure on India's important service export industry. This policy change could be a key factor in the withdrawal of foreign capital from India.
On the 28th, Associate Professor Liu Chunsheng from the School of International Economics and Trade at Central University of Finance and Economics told Global Times reporters that the withdrawal of foreign capital from India is mainly driven by both internal and external factors. The main external reason is the strong dollar causing global capital to return to developed markets. Internal factors are more critical: Indian stock valuations have been consistently high, creating pressure for a correction; meanwhile, corporate earnings growth generally falls short of expectations, making it difficult to support high valuations. A deeper concern lies in India's policy environment, where foreign investment regulations lack continuity and transparency, and infrastructure and other business environment shortcomings weaken long-term appeal.
Multiple factors combined have led to capital outflows. The Hindustan Times stated that persistent weak corporate earnings have hit the market. Data shows that profits of Indian companies in the MSCI index are expected to grow by 5% in 2025, lower than 8% last year. Foreign capital outflows have spread to the foreign exchange market, lowering the rupee exchange rate and eroding the attractiveness of local assets. Since 2025, the rupee has fallen more than 3.7% against the U.S. dollar. The pressure on the stock market is evident, with selling causing the benchmark index Nifty 50 of the Indian stock market to rarely underperform other regional indices. As of September, the benchmark index has lagged behind the MSCI Asia Pacific Index for five consecutive months, marking the longest period since 2013.
According to a report by the Business Standard on the 27th, a survey conducted by the National Institute of Economic Research in Delhi found that business confidence in India's current fiscal quarter decreased compared to the first quarter, marking the first decline after three consecutive quarters of improvement. The survey was conducted in September, just days after the Trump administration imposed a 50% tariff on most Indian goods and the Indian government announced the Goods and Services Tax reform.
The report said that very few analysts expect the momentum of foreign capital outflows from India to reverse in the short term. Chananan, Chief Investment Strategist at Singapore's Saxo Bank, stated that to truly reverse the situation, investors need to see evidence of clarity in U.S. trade and immigration policies, stability of the rupee, and proof that the current valuation of the Indian stock market is reasonable...
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