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Is India's Investment Drought Ending as AI Craze Fades?
2 Aug
Summary
- India's MSCI EM Index weight fell to a six-year low of 10.9%.
- Foreign investors sold $53 bn from India since September 2024.
- Early signs suggest a shift back to India from Korean markets.
India's weighting in the MSCI Emerging Markets Index has fallen to a six-year low of 10.9%, a significant decline from its peak. Foreign portfolio investors (FPIs) have withdrawn approximately $53 billion from India since September 2024, drawn by AI-related stock rallies in Taiwan and South Korea. This concentration in AI plays created a vulnerability within emerging market indices.
However, recent trends in June and July 2026 indicate a possible shift. FPIs have sold substantial amounts from South Korea, suggesting the AI euphoria might be unwinding. This presents an opportunity for India, as global emerging market managers may increase their allocation from underweight to neutral.
Factors such as government measures to attract foreign investment, including tax exemptions for government securities to facilitate inclusion in the Bloomberg Global Aggregate Bond Index, and the RBI's efforts to manage currency depreciation, are expected to support sentiment. The Indian economy shows signs of recovery, with a projected GDP growth of 6.6% for the fiscal year ending March 2027.
