India Could See $25 Billion Inflows As Global Funds Reduce Underweight Position

Global emerging market funds remain heavily underweight on Indian equities despite recent improvements in investor positioning, according to HSBC. The brokerage estimates that India could attract nearly $25 billion in additional foreign inflows if overseas funds merely move their allocations closer to benchmark-neutral levels rather than increasing overweight exposure.

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The estimate reflects a structural under-allocation to India that has persisted for several years, even as foreign investor interest has shown signs of recovery in recent months.

Majority Of Emerging Market Funds Remain Underweight

HSBC said more than 80% of global emerging market funds are currently underweight on India. A decade ago, the proportion of underweight funds was below 20%, highlighting how positioning has changed over the years.

According to the brokerage, the sizeable underweight allocation represents a significant pool of potential capital. Even a partial reduction in these underweight positions could result in meaningful foreign investment flows into Indian equities.

As stated in the report, the amount of $25 billion coming in is determined from the positioning trend in the long term, not from short-term developments in the market.

Allocation of Portfolios Is Shifting

According to HSBC, there have been changes in the allocations of investors in Asia starting from May. The emerging market funds have reduced allocation to Taiwan by 0.6 percentage point and to South Korea as well.

However, they have increased their allocations to India marginally and increased allocation to mainland China by 0.5 percentage point. According to HSBC, these adjustments indicate a gradual broadening of portfolio allocations across the region.

The report suggests that although India remains underweight in global portfolios, investor positioning has become relatively more constructive in recent months.

Stock-Level Positioning Reflects Rotation

During June, overseas funds reduced holdings in several large Indian companies, including Bharti Airtel share price, Kotak Mahindra Bank share price, Eicher Motors share price, HDFC Bank share price and InterGlobe Aviation (IndiGo) share price.

Meanwhile, the largest additions were seen in Adani Ports share price, Infosys share price, Hindustan Unilever share price, ONGC share price and Hindustan Aeronautics share price.

The stock-level changes indicate selective sector rotation rather than a broad withdrawal from Indian equities.

Foreign Buying Returns To Indian Equities

HSBC also noted that India has recorded net foreign portfolio inflows since mid-June. During the same period, markets including Thailand, the Philippines, Malaysia, Indonesia and Vietnam experienced net selling by overseas investors, while South Korea and Taiwan registered comparatively larger outflows.

Within India, financial services, consumer companies and healthcare stocks attracted the strongest foreign buying.

The brokerage said the long-standing underweight positioning remains the key factor supporting its potential $25 billion inflow estimate. As global funds gradually rebalance portfolios, India could continue to benefit if investors narrow the gap between current allocations and benchmark-neutral exposure.