India in the Shadows: Why FPIs are Ignoring India Amidst the US Tech Frenzy
Foreign Portfolio Investors (FPIs) have pulled out a significant Rs 69,000 crore so far in 2025, and there are few signs of a reversal. This sustained outflow comes despite the Indian market being held up by strong domestic mutual fund inflows. Praveen Jagwani, CEO of UTI International, provides clarity on this trend, highlighting how the tech-led bullish trend in the US market has consumed the attention and capital of global investors.
Global Focus: The Magnificent 7 vs. India’s Valuations
Global investors are currently not focused on India. According to Jagwani, their attention is entirely “consumed by the excitement of the tech rally, the magnificent 7, or now the magnificent 10.” The substantial returns generated by US equities have left them with no “bandwidth” to evaluate any other market or asset class.
FPI flows have been net negative in the last two years, resulting in India’s equity market effectively going sideways.
Elevated Valuations: India is still trading at 22 times its earnings against a long-term average of 17, making it look expensive compared to other opportunities.
Despite India’s market capitalization of roughly $5 trillion being 4 per cent of the global market cap, its weight in the MSCI All Country World Index (ACWI) is only 2 percent.
“The world is investing only 66 basis points in India against its ACWI weightage of 2 per cent. The entire FPI investment of $820 billion in India is only 66 bps of the total market cap of the world.”
India is significantly underinvested primarily because it is not a tech play. Investors are interested only in AI, rare earths, R&D in tech, chips, and data centers—placing India firmly in the shadows.
The AI Bubble: Math That Does Not Add Up
Jagwani draws a critical parallel, questioning whether the current AI boom is similar to the dot-com bust.
He believes the math is fundamentally flawed. The massive investments in AI infrastructure and data centers would only be remunerative if the returns from top tech companies like Meta, Microsoft, OpenAI, and Oracle touched almost $4 trillion—a scenario that is “not going to happen in a hurry.”
The world is currently “willing to be fooled” by business models like an OpenAI company that has no profits yet claims a valuation of a trillion dollars. He cites an example of an early investor losing $12 billion on a 33 percent stake, suggesting the overall loss is massive.
“The frothy bubble may continue for a few more months because I do not yet see the catalyst that will prick this bubble.”
Outlook and Potential Reversal
UTI International has managed to attract inflows of about $100 million year-to-date from regions like Europe, the UK, the GCC, Japan, and Singapore, based on India’s long-term story of a growing middle class and consumption boom.
A reversal in FPI flows will only pick up if the US markets fall sharply. While India is 17 percent of the EM index, flow to emerging markets has also been dominated by AI-related plays: semiconductor plays in Taiwan and Korea and rare earths in China.
Furthermore, India’s recent investments in semiconductors are deemed “too little and too late to be meaningfully competitive” on a global platform. Interest in India will return only if the US markets correct, turning India into a contrarian play against the momentum-driven S&P 500.
Jagwani believes the US Fed is in a trap. The S&P 500’s lifetime highs are attributed to the incessant infusion of liquidity since the 2008 financial crisis, ballooning the Fed’s balance sheet from $3.6 trillion to about $7 trillion.
If the Fed embarks on quantitative easing (infusing more liquidity), the bubble will not burst, and markets will rise higher.
If the Fed increases rates, it will hurt the already weak economy.
If the Fed cuts rates, it will be inflationary.
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