India recorded a net foreign fund inflow of $106 million during the latest trading week, marking the first positive weekly flow in seven weeks, according to a report by Elara Capital. The development signals a potential turning point for Indian equity markets, which had faced sustained selling pressure from foreign investors since early 2025. The inflow comes amid a broader stabilisation in global liquidity conditions.

Breaking the Outflow Streak

The latest inflow follows a bruising six-week period during which cumulative outflows from India-focused funds totalled nearly $5 billion. Elara Capital's report noted that weekly outflows from such funds had declined sharply — from a peak of $1.2 billion to approximately $180 million — indicating a meaningful easing of selling pressure.

This gradual moderation in outflows suggests that the most aggressive phase of foreign institutional selling may be behind India, though analysts caution that a sustained reversal is yet to be confirmed.

ETFs Lead the Recovery

Exchange-traded funds (ETFs) were the primary driver of the recovery, attracting inflows of $220 million during the week. In contrast, long-only funds — typically managed by active fund managers with a longer investment horizon — continued to record outflows of approximately $400 million, highlighting that institutional conviction in India remains cautious.

Notably, US-domiciled funds, which had been a dominant source of selling pressure in recent weeks, posted inflows of $225 million after enduring seven consecutive weeks of outflows totalling $3.3 billion. This reversal in US-based fund flows is being closely watched as a potential indicator of renewed appetite for Indian equities among American institutional investors.

India-Dedicated Strategies Still Under Pressure

Despite the headline improvement, India-dedicated investment strategies have now recorded outflows for nine straight weeks, underscoring that foreign portfolio investors (FPIs) with a specific India mandate remain net sellers. This divergence — between ETF inflows and active fund outflows — reflects a split in investor sentiment: passive investors are returning, but active managers remain wary.

This is a critical distinction. ETF inflows are often driven by index rebalancing and tactical allocation, while long-only fund inflows signal deeper, conviction-led investment. The absence of the latter suggests that structural concerns — including India's rich valuations, currency pressures, and global risk-off sentiment — have not fully dissipated.

Global Liquidity Remains Supportive

The broader global fund flow environment remained favourable for the fourth consecutive week, providing a tailwind for emerging markets including India. US equity funds attracted inflows ranging between $10 billion and $22 billion per week over the past month, while global-mandated funds drew in $16 billion.

Global Emerging Market (GEM) funds continued to attract up to $2 billion in weekly inflows, and emerging market growth funds saw inflows of $1.4 billion. India, as a key weight in GEM indices, stands to benefit as these broader flows stabilise.

In stark contrast, Europe and China continued to witness outflows over the past five weeks, highlighting divergent regional trends and suggesting that global capital is selectively re-entering markets perceived as more resilient.

Commodity and Sector Fund Flows

Flows into commodity-related equity funds softened following strong gains recorded during the period of heightened geopolitical tensions. Energy equity funds saw moderating outflows, while gold inflows stabilised at a slower pace. Silver-related flows remained weak, reflecting a broader normalisation in safe-haven demand as geopolitical risk premiums eased.

Looking ahead, the sustainability of India's return to positive weekly inflows will depend on the trajectory of US Federal Reserve policy, global risk appetite, domestic corporate earnings performance, and the broader resolution of geopolitical uncertainties. If US-domiciled funds maintain their reversal and long-only funds begin to follow, India could see a more durable recovery in foreign capital flows in the weeks ahead.