Foreign investors are rapidly withdrawing from the Indian stock market, shifting their focus towards Chinese equities. Over the past six months, approximately €26.5 billion has been pulled out of Indian markets, marking the highest capital outflow on record.
Market Pressures and Economic Concerns
According to a report by Reuters, persistent inflation and rising interest rates have significantly impacted investor confidence. The NSE Nifty 50 index, a benchmark for Indian equities, has fallen by 13% since its peak in September, leading to a €915 billion decline in market capitalisation.
At the same time, the Hang Seng Index in Hong Kong, which tracks major Chinese companies, has surged by 36% since late September. Analysts attribute this shift to growing investor interest in artificial intelligence (AI), particularly following advancements by the Chinese startup DeepSeek.
Shifts in Investment Strategies
The slowdown in corporate earnings and India’s weakest economic growth in four years have prompted global investors to reassess their strategies. While India has been a key market for emerging economy investments, recent macroeconomic conditions have dampened its appeal.
China, on the other hand, has experienced renewed investor interest, driven by optimism surrounding AI and technology-related sectors. The strong rally in Hong Kong’s Hang Seng Index suggests that global investors are increasingly turning to Chinese markets as a more attractive alternative.
Economic Growth and Policy Challenges
India’s economic slowdown has been a key factor in this capital flight. The country’s gross domestic product (GDP) growth rate has been declining, reflecting broader economic challenges. Additionally, persistently high inflation and tighter monetary policies by the Reserve Bank of India (RBI) have further weighed on market sentiment.
Meanwhile, China’s efforts to revitalise its economy through technology-driven growth have caught the attention of institutional investors. The rise of AI-focused firms such as DeepSeek has reinforced confidence in Chinese equities, shifting capital away from India.
Outlook for Indian Markets
Despite the current outflows, some analysts believe India’s long-term growth prospects remain strong. The country continues to attract foreign direct investment (FDI) in sectors such as manufacturing and digital services. However, stabilising inflation, improving corporate earnings, and regaining investor confidence will be crucial for a market recovery.
