There’s a shift within the investing panorama within the rising markets, as India — as soon as a international investor darling — is shedding sheen as FIIs transfer to cheaper alternate options like Taiwan, South Korea, Brazil and China.
In accordance with a latest Nomura report, Indian shares have turn into the most important underweight allocation for rising market (EM) traders. In July, traders reallocated capital from India to markets like Taiwan, Hong Kong/China, and South Korea. As per Nomura’s evaluation of huge EM funds, 71% of them have been underweight on India on the finish of July, up from 60% on the finish of June, in response to knowledge cited in a Bloomberg report.
Nomura strategists, together with Chetan Seth, famous that EM funds’ relative allocation to India declined considerably by 1 share level month-on-month in July, whereas allocations to Hong Kong/China, Taiwan, and Korea noticed a corresponding improve.
This evaluation comes on the again of a Financial institution of America (BoFA) survey, which confirmed India has gone from fund managers’ high Asian decide to their least most well-liked in simply three months.
FII promoting value $12.8 billion thus far in 2025 underscores the weakening attraction of Indian shares for international traders. In accordance with Elara Capital, the choice has probably shifted in the direction of South Korea, Taiwan, and China, the place valuations are extra profitable.
Why are FIIs dumping Indian shares for different EMs?
1. Earnings slowdown
Elara Capital stated that India’s USD EPS progress for the June quarter was simply 4% YoY, putting it within the decrease half of worldwide markets. Regardless of this, valuations stay elevated because the Nifty trades at 19.4x two-year ahead P/E, effectively above MSCI EM’s 12.6x.
Consensus estimates venture India’s USD EPS CAGR at 9% for CY24–26, lagging behind MSCI EM’s 14%. Earnings momentum has weakened, too. FY26 earnings estimates for India have been reduce by 1.8% over the previous three months, whereas China noticed upgrades of three.7% and MSCI EM rose 0.2%.
Nonetheless, sustained earnings supply and constant upgrades will probably be
essential for restoring FII curiosity in Indian equities, it added.
2. Trump tariff tantrum
Because the US boosted tariffs on India to one of many highest on the earth at 50%, FIIs are rising cautious of Indian shares.
“Ongoing geopolitical and commerce/tariff uncertainties cloud India’s near-term outlook. The latest improve in US tariffs on Indian items beneath Trump’s commerce insurance policies, together with cautious company earnings steering, is contributing to a extra defensive strategy by international traders,” stated Ross Maxwell, World Technique Lead at VT Markets.
3. Valuation conundrum
India’s inventory market has delivered good returns over the previous few years, with benchmark indices Nifty 50 and Sensex hitting document highs. Nonetheless, this rally has made Indian equities comparatively costly, particularly when in comparison with different markets in Asia and Latin America, stated Maxwell.
Rising markets akin to Taiwan, South Korea, Brazil, and Indonesia have gotten extra engaging resulting from decrease valuations and sector-specific alternatives, he stated.
Elara additionally opined that South Korea, Taiwan, and China, present a lot better value-growth propositions amid tech tailwinds, earnings upgrades, and cheaper valuations.
4. Revenue taking
One more reason for this shift is profit-taking, stated analysts. “With FIIs having loved robust beneficial properties in India and at the moment are reallocating capital to underperforming or undervalued markets with higher near-term upside,” Maxwell famous.
Can FII promoting development reverse?
Whereas the FII selloff is maintaining Indian inventory markets subdued regardless of a flush of liquidity from home traders, analysts consider that this rotation is extra strategic, fairly than a lack of confidence in India’s fundamentals.
“Regardless of this outflow, it is very important be aware that India stays a structurally robust, long-term funding vacation spot due to its demographic, digital transformation, and macroeconomic resilience,” stated Maxwell.
Rajini Vislavath, CIO of Alternate options-LGT Wealth India, stated that reversing this development would require steady coverage frameworks, improved company governance, enhanced earnings progress, and additional easing of regulatory hurdles.
Within the medium to long run, India’s robust fundamentals akin to digital progress, demographic energy, and macro resilience are anticipated to re-attract FII curiosity, Maxwell added.
Disclaimer: This story is for instructional functions solely. The views and suggestions expressed are these of particular person analysts or broking companies, not Mint. We advise traders to seek the advice of with licensed consultants earlier than making any funding choices, as market situations can change quickly and circumstances could differ.
