India-focused equity funds: $8.5bn outflows in 2026

What changed for India-focused equity flows in 2026

India-focused equity funds have seen accelerating foreign redemptions in 2026, with investors pulling out $1.5 billion during the year so far. The withdrawals have reversed more than half of the inflows that came in after 2023, as global money has rotated toward US technology and artificial intelligence-linked markets. Elara Securities, in its Global Liquidity Tracker, estimated that about 55% of the inflows received between March 2023 and October 2024 have now been redeemed. The data adds to a broader picture of sustained foreign selling across Indian equities in 2026.

How much money has gone out, and from where

The fund-flow data points to a concentration in the source of redemptions. Most of the withdrawals from India-focused equity funds have come from Luxembourg and Japan-domiciled funds, according to the Elara tracker. Separately, India and China have remained under pressure in emerging market allocations, with reported outflows of $140 million and $1.7 billion, respectively. The picture suggests continued caution toward parts of Asia even as some global capital has shifted to the US.

FII selling on Indian bourses: the scale in early 2026

Beyond dedicated India funds, foreign flows in the secondary market show sharper selling. In the first four months of 2026, FII outflows touched $10.2 billion, nearly nine times higher than the same period in 2025. That four-month number also exceeds the $18.9 billion pulled out in all of 2025. Reports also put withdrawals from dedicated India-focus funds at $1.5 billion in the first five months of 2026.

Net outflows across broader emerging-market allocations

When broader global emerging market (GEM) allocations are included, net outflows from secondary markets breached ₹2.3 lakh crore ($17 billion) between January and May. This level has already eclipsed the total foreign liquidations recorded over the entirety of 2025, based on the cited tracking. The data underlines that the pressure is not limited to a single route like dedicated country funds.

Month-by-month momentum: spring acceleration and DII support

Foreign capital outflows were described as persistent, with only a minor net-buying pause in February. The selling pace peaked during spring. Outflows were reported at ₹60,847 crore in April and a further ₹33,000 crore in May. Against this backdrop, domestic institutional investors (DIIs) provided a counterweight: in May alone, DII net inflows were reported at ₹82,600 crore, absorbing the supply from foreign selling.

RBI’s March bulletin: a sharp swing in one month

The Reserve Bank of India (RBI) bulletin highlighted how quickly the balance shifted in March 2026. It recorded net foreign investment outflows of $11.8 billion in March, versus net inflows of $1.4 billion in February, a $19.2 billion swing in a single month. The bulletin also noted net FDI fell from $1.4 billion to $1.6 billion. Net portfolio investment, in the same comparison, swung from positive $1.9 billion to negative $13.3 billion.

Balance of payments stress: April 2026 snapshot

Separate balance of payments data showed India’s BoP moved from a surplus of $1.5 billion in April 2025 to a deficit of $1.6 billion in April 2026. In that month, India recorded a current account surplus of $1.7 billion, supported by services receipts. But the capital account recorded a net outflow of $11.3 billion, compared with a net inflow of $1.3 billion in April 2025. Foreign portfolio investors withdrew $1.7 billion in April 2026, wider than the $1.1 billion outflow a year earlier, while banking capital reversed to an outflow of $1.7 billion from an inflow of $1.3 billion.

FY26 context: weaker capital account, mixed FDI numbers

For FY26, the current account deficit (CAD) was reported at $10.2 billion (Rs 2.86 lakh crore), wider than $13 billion (Rs 2.18 lakh crore) a year earlier. A key concern flagged in the same set of data was the collapse in the capital account surplus to $12 million (Rs 685 crore), from $19.4 billion (Rs 8.5 lakh crore) two years earlier. Gross FDI inflows rose to a record $14.53 billion (Rs 8.98 lakh crore) from $10.6 billion (Rs 7.65 lakh crore) in FY25, but net FDI was reported at $1.65 billion (Rs 72,675 crore). Outflows linked to repatriation and outward investment were also described as rising, with such outflows reported at $13.58 billion (Rs 5.09 lakh crore) in FY26, up from $14.47 billion (Rs 4.22 lakh crore) in FY24.

Policy response: steps to attract foreign capital

The RBI announced measures aimed at attracting foreign capital, including a temporary facility until September 30 to lower the cost of external commercial borrowings (ECBs) by public sector undertakings. It also offered incentives for NRIs to make fresh fixed-term deposits of overseas earnings in stable foreign currencies with Indian banks. The central government complemented these moves with steps intended to attract more FPI into government securities, including streamlined investment norms, expanded access to government bonds, and tax exemptions on interest income and capital gains.

Key figures at a glance

Why the outflows matter for investors and markets

The numbers show foreign selling pressure has coincided with a rotation toward US technology and AI-linked markets, and with weaker risk appetite toward parts of emerging markets. In India, sustained outflows have been partially absorbed by domestic institutional buying, as reflected in the May DII figure. Macro data also shows a period where a current account surplus coexisted with a capital account outflow, highlighting how portfolio flows can dominate near-term market liquidity.

Conclusion

India-focused equity funds have seen $1.5 billion in outflows in 2026, with redemptions reversing 55% of the post-2023 inflow cycle, according to the Elara Securities tracker. Broader data points to heavy foreign selling in early 2026, even as DIIs have stepped in at scale. Policy measures from the RBI and the Centre are positioned around easing foreign capital access and encouraging inflows. Investors are likely to watch upcoming flow data, RBI updates, and the durability of domestic support as foreign selling continues to shape market conditions.