At a time when foreign portfolio investors are cutting exposure to Indian equities because of tariff turmoil, elevated valuations and muted corporate earnings, India-focused exchange traded (ETFs) and active funds are increasing investments. According to experts, demographic dividends, growth, reforms, domestic consumption, digital adoption and China’s declining weight in global portfolios are attracting these entities.
These funds allocate 100% of flows into India and are inherently more stable compared with mandates like Asia (ex-Japan), BRICS and EM ETFs that invest in multiple markets.
“The uniqueness of Indian market, its stability and depth are driving more dedicated mandates,” said Nikunj Doshi, managing partner of Bay Capital, which operates an FPI fund. “The trend also reflects the surging interest in India-specific investments from south-east Asia and the Middle East.”
Strong performance boosts India-specific AUM
It is difficult to ascertain a fund’s mandate from its FPI registration, said experts. These India-specific bets have made handsome returns and their assets have swelled. Kailash Kulkarni, CEO at HSBC Mutual Fund India, said its India-specific funds domiciled in Japan and Luxembourg increased their AUM by three times in the last two years.
India-focused mutual funds, sovereign wealth funds’ India allocations and long-only India equity funds primarily comprise India-focused funds. Global emerging markets (GEM) dominate in terms of assets deployed. They are often benchmarked against the MSCI Emerging Markets Index, FTSE EM Index, etc.
India’s weight in the MSCI EM index rose to 18–19% in 2025, from 8% a decade ago. From being the 10th-largest economy 10 years ago to the fifth-largest economy now, India continues to be in a sweet spot as the fastest growing major economy in the world.
Assets of Indian mutual funds swelled sixfold in the last 10 years.
Reforms, AIFs and GIFT City deepen market
To facilitate the ease of onboarding FPI applicants, Sebi has simplified the common application form for certain categories and also established a dedicated FPI outreach cell to ensure direct engagement. Total FPI investments in 2024 stood at approximately $20 billion.
GIFT City in Gujarat presents an alternative avenue for setting up foreign funds. The growth of domestic alternative investment funds (AIFs), which raised close to $60 billion from private equity, venture capital and hedge funds, has deepened Indian markets.
“The growing contribution of AIFs, alongside sustained FDI inflows, highlights the maturity of India’s capital ecosystem and the confidence global and domestic investors place in the country’s long-term growth story,” said Rajat Tandon, President, IVCA.
“Dollar-strength-led outflows from GEM funds are large, while inflows from India-focused funds are small,” said Harendra Kumar, MD at Elara Securities. This is a conundrum the Indian capital markets have to deal with for now as GEM and other EM funds own the lion’s share of FPI assets.