Global funds retreat from Indian stocks as some cut exposure to zero - Bloomberg

Global investors are withdrawing from Indian equities, with some managers reducing their exposure to zero, according to Bloomberg. Weak earnings, high valuations, and the absence of an artificial intelligence investment theme have diminished the market's appeal. Foreign portfolio ownership of Indian stocks has dropped to a 17-year low.

Overseas funds have pulled a net $25 billion out of Indian stocks this year, moving capital to markets like Taiwan and South Korea that offer greater exposure to the AI boom. Reed Capital Partners exited its Indian equity portfolio about a month ago, and Janus Henderson Investors and Vantage Point Asset Management have also cut India exposure to zero over the past year.

Indian stocks remain pricey compared to emerging-market peers, with the Nifty 50 trading at 17.6 times forward earnings and carrying a 77% premium to the MSCI Emerging Markets Index. The Nifty is near a level last seen in mid-2024 and is on track to end a decade-long streak of annual gains. India's presence in the MSCI Emerging Markets Index has shrunk to about 11% from 16% a year earlier.

Rising oil prices and a weaker rupee have fueled investor worries. India's heavy reliance on imported energy has put pressure on the current account during the U.S.-Iran conflict, with the rupee hitting a record low and being among Asia's weakest currencies this year. Domestic investors have partially offset foreign selling, buying a net $60 billion worth of stocks this year, based on BSE data.

While some investors remain optimistic, Morgan Stanley forecasts India will experience an economic growth upturn, with the BSE Sensex rising 19% to 89,000 by June 2027 under its base case.