Charting the tides of capital

September 2025

Why Global Capital Is Moving – And Why India Stands To Gain

Since early 2025, global capital flows have entered a period of recalibration. Rising tariffs, high bond
yields, and increasing policy risks have triggered a reassessment of portfolio allocations by institutional
investors. Foreign Institutional Investors (FIIs), in particular, began moving away from developing markets
due to elevated U.S. yields and dollar strength.

However, a shift is now underway. With expectations of U.S. rate cuts and dollar weakness, investor
sentiment toward emerging markets is improving. This opens the door for a potential rerouting of capital,
and India is well-positioned to benefit from this trend.

FII Flows to India Are Volatile-But the Direction Keeps Turning Positive

Data is from Jan 2015 to Aug 2025

Foreign Institutional Investor (FII) flows into Indian equities have long been volatile, driven by global
macro cycles—from COVID-19 to Fed rate hikes. But if there’s one trend that stands out, it’s this: FIIs
often return, and Indian markets recover even faster.

Key Pointers:

MoneyControl
NSE; Data recovery period between 31 Mar 2020 and 06 Oct 2020 vs value at the beginning of the year 01 Apr 2019
NSE; Data recovery period between 30th June 2022 to 10th August 2022

The World’s Favorite Investment Destination – The U.S., May Not Stay Attractive for

For years, the U.S. has commanded the lion’s share of global institutional allocations. But the very size and
success of its markets are beginning to signal risk. The S&P 500, with a market cap of ~$52 trillion, has
become increasingly top-heavy: just 10 stocks now make up over 36% of its total market cap, up from
19% in 2010. This growing reliance on a handful of tech giants raises systemic vulnerability and limits
diversification. Combine this with high valuations, an ageing population, and sovereign debt breaching
120% of GDP, and the case for overweight exposure becomes less compelling.

Market cap concentration continues

Top 10 stocks = 36% of market cap, but ~22% of earnings.

Ageing demographics and high federal debt
pose structural risks

US Gross Federal Debt to GDP Ratio

Emerging Markets Will Continue to Attract FIIs in the Search for Growth

Index Performance YTD –

Net Returns (%) (JULY 31, 2025)

Emerging markets have demonstrated a notable outperformance compared to global counterparts.

EMs offer structural growth, improving fiscal positions, and increasingly investor-friendly policies.
Countries in Latin America, Southeast Asia, and South Asia are showing signs of sustainable expansion,
low correlation to developed markets, and yield arbitrage—making them prime destinations for capital
reallocation.

Among Emerging Markets, India Remains the Top Bet for Sustained Value Creation

India continues to lead the EM pack with its unmatched combination of size, growth, reform, and
resilience. A young and expanding workforce, policy tailwinds like the PLI scheme, and resilient
macroeconomic framework has helped India maintain both stability and upside potential. FIIs are
recognizing this—reflected in increasing sectoral allocations toward financials, infra, and telecom

Strong and stable growth trajectory

Demographic dividend in play

Currency stability and easing inflationary pressures are reinforcing India’s macro credibility — boosting investor confidence in long-term allocations.

The Indian rupee has shown exceptional resilience, with just 3.43% volatility against the US dollar over the
past year—lower than Brazil’s real (13.41%), Mexico’s peso (12.57%), and Taiwan’s dollar (9.04%).

As the U.S. economy faces structural pressures and global capital begins to look for more sustainable
growth stories, India stands out with the right combination of scale, policy stability, and macro strength

IMF Data Mapper
https://www.investing.com/ – Standard deviation across 1 year for all currencies against US Dollar