The Great Escape: As investors ditch US for greener pastures, India may benefit

Although the bearish sentiment among US investors eased in March from levels in January or February, they remain at decadal highs, similar to the covid period, said Garima Kapoor, economist and executive vice president at Elara Securities India.

Recession fears owing to policy uncertainties and Trump’s tariffs are adding to the valuation discomfort in the US markets, leading to about $15 billion in outflows from US equities, while the global ex-US markets attracted an inflow of about $4 billion in March, she said.

A gradual rotation away from the US markets is beginning to pick up in favour of Europe and large emerging markets like China and India, she noted.

“India-dedicated inflows surged to a six-month high of $419 million. On the other hand, after a 13-week large inflow of $33 billion in the previous week, US funds saw $19 billion in redemptions last week,” Kapoor said, citing Elara’s analysis of data from EPFR, a London-based provider of data on fund flows and asset allocations.

The markets typically react negatively to uncertainty and Donald Trump’s comments are creating plenty of it right now. This lack of clarity can delay business decisions, potentially leading to a slowdown in the US economy or even a recession.

Trump is gearing up to drop his biggest round of tariffs on 2 April. He just made it clear that he won’t be playing favourites with his new reciprocal tariffs. Instead of targeting the 10 to 15 countries with the biggest trade imbalances, he is taking a no-exceptions approach.

Tariffs, recession talk

Trade uncertainties remain the key headwind for emerging markets including India. But India’s willingness to work out a deal with the US could help cushion the blow, said experts.

The most limited and least impactful interpretation would involve merely matching the tariffs that other countries impose on the US, according to a Nomura report dated 28 March.

“If India’s tariff on imports from the US is 9.5%, and US’s tariff on imports from India is 3%, then the reciprocal tariff would be 6.5%,” Nomura said.

The Japanese brokerage applies this narrow interpretation and is of the view that India, Thailand and Brazil are among the five most exposed.

India relies on capital inflows from the US, including foreign portfolio investments and remittances from non-resident Indians, so a prolonged US recession could weaken these inflows, affecting market liquidity and economic growth, explained Ganesh Mohan, CEO of Bajaj Finserv AMC.

India is bouncing back from a cyclical slowdown, with GDP growth in FY26 set to outpace the expansion in FY25 while inflation stays manageable—unlike in the US, where tariffs are fuelling inflation and weighing on growth, he added.

According to Bloomberg data, the MSCI India Index is trading at a price-to-earnings multiple of 24.24 compared with the 40.06 multiple of the MSCI US Index, which makes India look like a relatively attractive bargain.

As investors start to look beyond the US, Indian stocks are catching some well-deserved attention, especially now that the Nifty 50 has declined 10% from its all-time peak.

India is viewed as an attractive destination for investment, particularly with respect to an increase in allocations from an emerging markets perspective, said Khushboo Chopra, head of business development at IQ-EQ India, a financial services provider to FIIs and private equity firms. Moreover, the increase in the World Bank’s India’s GDP growth forecast to 7% from 6.6% is expected to attract foreign investment, even in the face of a global downturn, she said.

Indian equities are drawing interest more from the China-plus one strategy and strong macro-economic environment at home than just the volatility in the US. With solid growth, favourable demographics and investment-friendly policies, India is emerging as a prime long-term bet.

China valuations

Moreover, historical trends indicate that during periods of US economic distress, the Indian markets have often benefited from capital inflows as investors seek stability, highlighted Chopra.

Milind Muchhala, executive director at Julius Baer India, said there is a growing case for FPIs to gradually turn positive toward select markets like China and India. China, in particular, is emerging from a prolonged phase of underperformance, with valuations now appearing quite attractive, he explained.

The Chinese government’s proactive measures to stimulate growth, combined with renewed buoyancy in the tech sector, are helping fuel momentum in the market.

“Back at home, albeit the near-term uncertainties, there is a case for the Indian markets to emerge as an attractive investment destination for the FPIs, especially once we see more stability emerging for the dollar index,” he said.

According to Muchhala, FPIs will probably want to see a bit more dollar stability and clearer signs of corporate profitability picking up before committing as consistent buyers in the Indian equity markets.

After offloading ₹72,675.89 crore in January and ₹46,600.4 crore in February, FIIs shifted gear in March, turning net buyers of ₹8,053.44 crore of Indian equities.

Global fund managers are taking a more cautious approach and are mindful about their fund allocation, said Ankur Jhaveri, MD & CEO of institutional equities at JM Financial Institutional Securities. Amid a wave of redemptions in emerging market portfolios, they have been forced to rethink long-term investments.

But fund managers are now becoming more opportunistic and gravitating toward ideas with clear profitability prospects, especially those backed by a favourable domestic environment, he said.

Sector beneficiaries

India’s economy is mostly powered by domestic consumption, but some export-heavy sectors—like IT services—remain exposed to a potential dip in US demand.

According to Chopra, sectors in India that are poised to benefit from the reallocation of investments away from the US include IT, pharmaceuticals, and renewable energy.

As global companies look for cost-effective solutions, Indian IT firms are likely to attract increased demand. Similarly, the global demand for healthcare solutions continues to rise, positioning Indian pharmaceutical companies favourably.

Finally, with a global shift trending towards sustainability and India’s own ambition to achieve net zero emissions by 2070, Indian renewable energy firms could attract significant investment, fuelled by rising energy demand and government subsidies, Chopra said.