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MUMBAI: AI markets are starting to see outflows. India isn't getting the money.
Taiwan and South Korea, two of the biggest beneficiaries of the global artificial intelligence (AI) investment boom, are showing early signs of cooling investor enthusiasm. But India, expected to benefit from any such rotation, is still seeing foreign money leave.
Since June, Taiwan- and South Korea-dedicated funds have attracted $23.5 billion and $28.4 billion, respectively, while India has seen outflows of $4.5 billion, said Sunil Jain, vice president at Elara Capital.
Over the past six weeks, however, Taiwan has recorded outflows of $796 million, South Korea $3.17 billion and India $1.48 billion.
“So, it is only since the past six weeks, where we are seeing very early signs of redemptions from the two AI economies. India outflows also continue but the relative momentum is now turning better,” he said.
The early outflows from Taiwan and South Korea may mark a pause in the AI trade, but there is little evidence yet of the money moving to India.
Taiwan and Korea are closely linked markets, driven by the AI theme. They are benefiting from a global AI capex boom that has created supply shortages, while the supply response is likely to take time, said Nitin Jain, chief executive, Kotak Asset Management Singapore. Trade restrictions arising from US-China tensions have further constrained supply, boosting profitability in the near to medium term.
But concerns over US AI spending, cash flows and profitability have triggered bouts of volatility in the AI theme, leading to sharp swings across some segments, he said.
“The inflows in these markets reflected the optimism of investors in AI investments and the superiority and even exclusivity of some of the businesses in Taiwan/Korea to exploit the upsurge in the AI investments and the recent outflows reflect more the recent volatility in the theme and some profit booking rather than long term disbelief,” Jain noted.
India, meanwhile, had been losing money as emerging-market investors reallocated towards the AI theme. Tariffs and oil prices, along with the perceived negative impact of AI on India, outweighed the positives from economic growth and earnings, Jain said.
Broader foreign investor inflows also remain tentative. After buying ₹23,331.85 crore in July and ₹22,846.78 crore in August, foreign institutional investors (FIIs) turned sellers again in September, offloading ₹43,001.52 crore worth of shares, according to data from BSE and the National Securities Depository Ltd.
The modest improvement reflects, to some extent, a growing confidence in corporate earnings and the resilience of the economy despite high oil prices and geopolitical risks, said market participants. But foreign inflows have yet to show a broad-based shift.
The rise in US 10-year Treasury yields could weigh on emerging-market sentiment. While large FCNR inflows will help mitigate risks for India, elevated energy prices and yields could keep investors cautious despite resilient growth and strong corporate earnings.
Spot Brent crude oil prices have shot up nearly 66% so far in 2026, while the US 10-year Treasury yield has risen around 28%, according to Bloomberg data.
“Oil remains the principal risk, but if prices stay contained, strong growth, improving earnings and currency stability could help revive foreign investor interest,” said Vinay Jaising, chief investment officer and head-equity, ASK Private Wealth.
India's relative position appears to be improving, although it is too early to call this a decisive shift, he said. The rupee has stabilized, corporate earnings remain strong, and Indian large caps have materially underperformed Taiwan and South Korea, improving their relative valuation appeal.
More importantly, Jaising believes confirmation would require sustained redemptions from the two AI-heavy markets alongside consistent inflows into India.
But the flows do not show that yet, said Lokesh Manik, senior analyst at Vallum Capital. Taiwan and Korea have swung from inflows to outflows, but India has not regained investor favour; the AI trade has simply paused, he said. “A real shift would mean India drawing inflows while Taiwan and Korea are still rising, not only when they wobble. Improving by default isn't the same as being preferred.”
The type of money moving through these markets also matters, Manik said. “Look at what kind of money owns each market, not just where it's flowing.”
ETF flows are more sensitive to global financial conditions than mutual-fund flows, and this year's Korea-Taiwan boom was driven by such money, Manik said. India, by contrast, has FPI ownership at a 17-year low of 15.1%, meaning much of the fast money has already left, offering some resilience to global shocks, he added.
For now, therefore, an AI-trade pause is not the same as an India rotation. India may be improving on a relative basis, but a genuine shift in investor preference would require sustained withdrawals from Taiwan and South Korea alongside consistent inflows into Indian equities.
Manik does not expect a return to broad-based rallies. With US 10-year yields around 5% and crude above $100, returns are likely to come from a handful of micro themes with concentrated leadership, making this a stock-pickers’ market.
Dipti has spent nearly a decade happily knee-deep in the fast-moving, occasionally nerve-wracking, and always fascinating world of stock markets, tracking everything from sharp sell-offs to surprise rallies, and the narratives that drive them. She began her journalism journey at Informist, sharpened her market instincts at CNBC Digital and Moneycontrol, and is now charting new territory with Mint. Here, she is exploring new ground, bringing together sharp analysis, on-ground insights, and a keen eye for what really moves markets.<br><br>Before stepping into journalism, Dipti studied law and worked with a solicitor firm for close to three years, an experience that gave her a strong foundation in analytical thinking, contracts, and corporate structures. But the pull of markets and storytelling proved stronger, prompting a switch from law to journalism.<br><br>She writes about stocks and investments, but that’s only part of the story. Dipti also teams up with market experts to turn complex trends into sharp, easy-to-understand videos, occasionally peeks at deals and acquisitions, and regularly picks the brains of industry leaders. Somewhere between earnings calls, market swings, and boardroom chatter, she’s always looking for the next story that explains what’s really moving the markets.
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