India has become the epicentre of emerging market outflows, experiencing significant capital flight as global equity funds turn negative for the first time since January 2026, driven by heightened geopolitical tensions and a broad-based risk-off sentiment.
Key Points
- Global equity fund flows turned negative for the first time since January 2026, driven by escalating geopolitical tensions, particularly the West Asia conflict.
- India has been the most severely affected emerging market, recording $3.7 billion in outflows over the last three weeks, equivalent to the total outflows from the entire EM basket.
- Last week alone, India saw $970 million in outflows, surpassing the $730 million in outflows from global emerging market funds.
- Exchange-traded funds (ETFs), primarily driven by US-domiciled investors, have become the main source of incremental selling in India-focused funds.
- The current flow pattern, characterised by an initial sharp correction, resembles mid-2021, which was followed by a stabilisation phase before markets peaked in March 2022.
Global equity fund flows turned negative for the first time since January 2026 as geopolitical tensions weighed on investor sentiment, according to a report by Elara Securities.
The shift comes as the West Asia conflict enters its fifth week, triggering broad-based outflows across markets.
Emerging Markets Under Pressure
Emerging markets (EMs) continued to see outflows, though the pace of selling eased.
Global emerging market (GEM) funds recorded outflows of $730 million last week, compared with $2.7 billion in the previous week, taking cumulative outflows over the past three weeks to $3.7 billion.
Within EMs, India has emerged as the most impacted market.
The country saw outflows of $970 million last week and $3.7 billion over the past three weeks, indicating sustained pressure on domestic equities.
On Friday, Nifty 50 fell 2.1 per cent, marking its fifth consecutive weekly decline — the longest since August 2025.
India-Focused Funds and ETFs
India-focused funds have also seen persistent redemptions, with outflows of $814 million last week following $2.4 billion over the previous two weeks.
The report noted that while long-only flows had already been weak, exchange-traded funds (ETFs) have now become the primary source of incremental selling, largely driven by US-domiciled investors.
In contrast, other Asian markets such as Taiwan and South Korea saw relatively smaller outflows, while China recorded inflows of $1.4 billion.
Global Market Dynamics
Meanwhile, US equity funds saw outflows of $27 billion, reversing the previous week's $50 billion inflows that were driven by hopes of de-escalation.
The bulk of the selling was led by domestic investors, who pulled out $24 billion after committing $50 billion a week earlier.
Foreign investors continued to pare exposure for a third consecutive week, with outflows of $3.5 billion.
Commodities and Safe Havens
Risk-off sentiment has also spilled over into commodities, including traditional safe havens.
Gold funds saw outflows of $7 billion — the largest since October 2025 — suggesting forced unwinding rather than defensive allocation.
Commodity equity funds recorded a record outflow of $4.7 billion.
Silver funds, however, bucked the trend with modest inflows of $480 million following a sharp drawdown in prices.
Elara noted that the current pattern of flows resembles mid-2021, when an initial sharp correction was followed by a phase of stabilisation before markets eventually peaked in March 2022.
India Bears the Brunt
$3.7 bn: Global funds pulled out from India over three weeks, matching total outflows from the entire EM basket
$970 mn: India outflows last week exceeded GEM outflows ($730 mn)
$7 bn: Safe-haven gold funds saw outflows, largest since October 2025
ETFs: Outflows driven by ETF-led selling in India-focused funds, intensifying redemption pressure
