Mumbai: Early signs of a slowdown in the global artificial intelligence (AI)-driven market rally could lead to renewed foreign investment flows into India, market experts believe, after years of capital being diverted towards AI-focused opportunities, particularly in the United States.
According to analysts, the recent sharp decline in the Nasdaq index, which fell around 5 per cent, may indicate that enthusiasm surrounding AI-related stocks is beginning to cool. If the AI trade loses momentum, foreign portfolio investors (FPIs) could start redirecting funds towards emerging markets such as India.
Foreign investors have remained heavy sellers in Indian equities this year. Data from the National Securities Depository Limited (NSDL) shows that FPIs sold equities worth ₹32,963 crore in May alone. The selling pressure continued in June, with net outflows of ₹42,926 crore recorded up to June 6. Total FPI equity outflows in 2026 have now crossed ₹2.83 lakh crore.
Given the importance of foreign capital in financing India’s current account deficit and overall balance of payments, both the government and the Reserve Bank of India (RBI) have introduced a series of measures aimed at attracting overseas investors.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd, said recent policy initiatives are likely to support forex inflows into the country.
These measures include tax exemptions on interest income and capital gains earned by FPIs from investments in government securities. Additional RBI initiatives such as absorbing hedging costs on FCNR deposits mobilised by banks, expanding the forex swap window, increasing access to government bonds through the Fully Accessible Route (FAR), and raising investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in Indian equities are also expected to improve foreign investor sentiment.
The policy support has contributed to greater stability in the Indian currency. The rupee, which had weakened to 96.96 against the US dollar, recovered to 94.94 by June 5, reflecting improving confidence in the market.
However, analysts note that a meaningful return of foreign investment into Indian equities may depend on a shift in global investment preferences. Over the past few years, the AI-led rally in US technology stocks has been one of the key reasons for capital moving away from emerging markets, including India. Any cooling of that trend could make Indian assets more attractive once again.
Indian benchmark indices ended the previous week in negative territory, with both the Nifty and Sensex closing lower amid concerns over geopolitical tensions and uncertainty surrounding global trade. Despite these challenges, strong domestic economic indicators helped cushion the decline and prevent deeper losses.
Market participants will now closely watch global technology stocks, AI-related investments, and future FPI trends to gauge whether foreign capital begins returning to Indian markets in the coming months.
With inputs from IANS