Information technology stocks, which accounted for nearly half of the outflows, bore the brunt of the sell-off as subdued consumer spending and macroeconomic uncertainty in the US, a key market, hurt demand. “High valuations, weaker earnings visibility in the first half of calendar year 2025 and tariff uncertainties were the key drivers for overseas sales,” said Siddhartha Khemka, head of research for asset management at Mumbai-based financial services firm Motilal Oswal Financial Services.
India could return to favor with global investors in 2026 if valuations decline, earnings stabilize and economic growth prospects remain intact, Khemka said.
Garima Kapoor, economist at Elara Capital, expects a rebound in inflows in the March quarter against the backdrop of accelerating government investment, easing inflation, potential progress on a trade deal and US interest rate cuts.
So far, India’s benchmark indexes Nifty 50 and Sensex are up about 10% each in 2025, underperforming their counterparts in Asia and emerging markets, even as robust local buying has softened the impact of foreign selling and helped the market during periods of volatility. In the September quarter, foreign holdings of Indian equities fell to a 15-year low of 16.9%, down from 17.4% at end-2024, while domestic mutual fund holdings have risen to a record high of 10.9%, down from 10% at end-2024, according to NSE data, indicating a shift in ownership.
Analysts expect India to benefit as money moves out of AI stocks globally.
“2025 was a year in which markets were forced to pause and recalibrate,” InCred Wealth said in a note.
“Tariff shocks and global uncertainty tested sentiment, but strong domestic participation ensured that markets never really lost their footing.”
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