AI trade fuels persistent FPI outflows from Indian equities

AI-driven global rally pulls foreign funds away, keeping FPIs selling in Indian equities amid rising macro pressures

FPJ News Service MUMBAI

Foreign portfolio investor (FPI) outflows from India are expected to continue as global capital increasingly chases opportunities linked to the artificial intelligence (AI) boom, analysts said.

 Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that a key trend this year has been strong inflows into markets such as Japan, South Korea and Taiwan, while India and some other emerging economies face sustained outflows.

  He said the AI-driven rally, particularly in select Asian markets, is a major factor influencing global capital allocation. Companies such as Samsung, SK Hynix and TSMC have attracted significant investor interest, backed by robust earnings growth tied to AI demand. This has diverted funds away from markets like India. During April, FPIs were net sellers to the tune of ₹63,167 crore, while ₹2,319 crore was invested through the primary market, resulting in net outflows of ₹60,848 crore. Analysts flagged that valuation comfort in Indian equities remains relatively stretched compared to some Asian peers, making them less attractive in the current global allocation cycle.  Moreover, rising US bond yields and a stronger dollar have further reduced the appeal of emerging markets. Any sustained cooling in AI-driven stocks or easing geopolitical tensions could reverse some flows, but near-term trends suggest FPIs may continue to remain cautious on India. 

  Despite this, domestic institutional investors continued to support the market, emerging as net buyers with investments of around ₹51,000 crore in April.  Their participation has helped absorb selling pressure and limit deeper declines. Meanwhile, rising crude oil prices amid geopolitical tensions, particularly around Iran, have added to investor concerns. 

Analysts said institutional flows will remain sensitive to global developments, while domestic triggers such as state election outcomes may also influence near-term market direction.