AI investment boom triggers massive outflows from India-focused equity funds

Foreign investors are pulling back sharply from India-focused equity funds, with nearly 60 per cent of the inflows made during the 2023-24 rally now withdrawn. According to Elara Capital, the shift reflects a global reallocation of capital towards artificial intelligence (AI)-linked investment opportunities, even as investor interest becomes increasingly selective within the AI theme.

Nearly 60% of 2023-24 inflows into India-focused funds have been withdrawn

Foreign investors have redeemed almost USD 12 billion from India-focused equity funds after pouring nearly USD 20 billion into the segment between March 2023 and October 2024, according to a research report by Elara Capital.

The report said the pace of withdrawals has accelerated this year, with India-focused funds witnessing USD 9 billion in outflows during calendar year 2026. Of this, USD 7 billion came from long-only funds, while exchange-traded funds (ETFs) accounted for another USD 2 billion in redemptions.

"Almost 60% of inflows that India focused funds saw in 2023-24 period has been pulled out. Redemptions have accelerated since Jan'26 to fund the AI trade & momentum continues to remain weak," the report said.

Among fund domiciles, Luxembourg recorded the highest withdrawals at USD 3.5 billion, followed by the United States with USD 2.4 billion and Japan with USD 2.1 billion. Ireland stood out as the only major fund domicile that largely escaped the current wave of selling.

Is the AI investment boom driving global capital away from India?

Elara Capital attributed the outflows primarily to investors reallocating capital towards AI-related opportunities across global markets.

"The broader AI ecosystem trade continues to lose momentum, although investors remain selective within the theme," the report said.

The report added that global emerging market (GEM) funds, which had increasingly become a proxy for investments across the AI value chain, are continuing to witness outflows.

"The AI trade is becoming concentrated in a few direct beneficiaries rather than the broader ecosystem," the report noted.

It further observed that foreign investors have resumed investing in dedicated South Korea and Taiwan funds after the market correction witnessed during April and May, although inflows remain significantly below the levels seen at the peak of the AI-driven rally.

Gold and US equities see renewed investor interest

While India-focused funds continued to witness redemptions, investor sentiment improved in several other asset classes.

Gold funds attracted USD 317 million in inflows during the latest week, marking the first positive weekly reading after experiencing nearly USD 14 billion in outflows since April.

"Gold funds recorded a modest inflow of $317mn, the first positive reading after $14bn outflows since Apr, while pressure on Silver funds has also eased over recent weeks," the report said.

The report also noted that US equity funds received USD 27 billion in fresh inflows, reversing withdrawals seen over the previous two weeks. European funds, meanwhile, registered their first weekly inflow in almost three months, indicating a gradual improvement in investor appetite for developed markets.

(With inputs from ANI)