India’s relative outperformance over emerging markets has started to improve as the pace of foreign selling in India‑dedicated funds moderates, even as global investors continue to channel money into artificial intelligence (AI)-linked themes.
Elara Securities said inflows into the AI ecosystem strengthened for a second consecutive week following the recent correction, indicating that investors continue to buy on dips rather than exit positions.
Global Emerging Markets (GEM) funds attracted a six‑month high inflow of $4 billion as the emerging markets index rebounded from its 200‑day moving average.
Among individual markets, South Korea remained the biggest beneficiary, attracting $3.5 billion in foreign inflows, while Taiwan recorded a 23‑week high inflow of $1.8 billion. Brazil and Mexico also saw improving foreign participation as their markets stabilised near their 200‑day moving averages.
Global industrial funds, another key beneficiary of the AI investment theme, recorded a seven‑week high inflow of $1.3 billion.
However, Elara cautioned that the AI trade has become increasingly crowded over the past three months, even as returns have begun to moderate.
"The correction has not triggered redemptions, but the real test will be whether investors who entered during the recent phase of euphoria continue to hold positions if the return profile remains subdued," the brokerage said.
For India, the report noted that dedicated long‑only funds have continued to witness redemptions since July 2025, although the pace of outflows has eased in recent weeks. Much of the selling during calendar year 2026 reflected investors rotating capital towards AI‑driven opportunities in markets such as Taiwan and South Korea.
With that rotation now showing early signs of moderating, India's relative performance has begun to improve. Since mid‑June, India‑focused long‑only funds have outperformed emerging market long‑only funds by around 10 percent, marking the strongest phase of relative outperformance since February‑April 2025, Elara said.
The week also saw renewed Japanese interest in U.S. equities. Following recent central bank interventions, yen‑denominated flows into U.S. equity funds rose to $1.3 billion, the strongest inflow since January 2026. Japanese investors have been among the largest providers of capital to U.S. equities since the pandemic, making these flows an important indicator for tracking any potential unwinding of the yen carry trade.
In contrast, the brokerage noted that Japanese investment into India peaked in August 2024, with Japanese funds remaining persistent sellers of Indian equities over the past year.
Meanwhile, gold funds recorded their fifth consecutive week of inflows, taking cumulative inflows to $5 billion after witnessing $17 billion of redemptions since March 2026. Commodity equity funds, however, continued to see weak investor interest.