Early signs of AI trade cooling down likely to trigger forex inflows into India
Mumbai, June 7
The Nasdaq crash in the US by about 5 per cent is an indication that the AI bubble may burst and if the AI trade cools down and reverse, that can trigger reversal of foreign portfolio investors outflows to the Indian markets, analysts said on Sunday.
In May, FPIs net sold equity for Rs 32,963 crore. The sustained selling continued in early June, too. The total selling in June (up to 6th) stood at Rs 42,926 crore, taking the total selling in 2026, so far, to Rs 283,662 crore, as per NSDL data.
Considering the significance of FPI inflows to finance the current account deficit and the Balance of Payments gap, the Central Bank and the government initiated several steps to attract FPI.
"The measures like exemption of interest and capital gains from FPI investment in government securities from taxation announced by the government, followed by announcements in the monetary policy like the RBI absorbing the hedging costs on FCNR deposits mobilised by commercial banks, increase in forex swap window, increased access to government bonds through the FAR route and increased limit for NRIs and OCIs to invest in the Indian equity market will pave the way for forex inflows into India," said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
This has also helped in the stabilisation of the rupee. The rupee which had depreciated to a low of 96.96 has appreciated to 94.94 on June 5. This is a positive development.
"However, if FPIs are to invest in India, the AI trade which has been the principal driver of FPI outflows away from India should change. There are early signs of this happening," the analyst noted.
Markets ended last week lower, with the benchmark indices, Nifty and Sensex, declining amid concerns over geopolitical tensions and uncertainty in global trade.
However, supportive domestic macroeconomic cues helped limit the extent of the decline, said analysts.
— IANS
Reader Comments
I don't understand why we're so dependent on foreign money. Our domestic investors are strong — mutual funds, LIC, EPFO. Instead of chasing FPIs with tax exemptions and special routes, why not focus on making our own institutions even stronger? That said, if AI trade does cool, maybe we'll see some stability in the markets. Fingers crossed! 🤞
As someone who works in IT, this AI hype was always overblown. Real AI is useful, but the stock market rally was pure speculation. If the bubble bursts, good riddance — our markets won't miss hot money that leaves at the first sign of trouble. What matters is genuine long-term investment in manufacturing, infrastructure, and R&D. Let the FPIs chase their tech stocks, we'll build real value here.
Rs 42,926 crore sold in just 6 days of June?! That's alarming. And total selling of Rs 283,662 crore in 2026 so far? These numbers make my head spin. I'm a retail investor with money in mutual funds — should I be worried? The article says RBI and government are taking steps, but honestly, it feels like we're just offering more sops to FPIs without getting anything concrete in return.
Classic example of 'sell the news' — everyone was crazy about AI in 2024-25, now the reality check. Our market fundamentals are actually decent: GDP growth is good, inflation is moderate, corporate earnings are stable. If FPIs pull out of AI globally, India could be the next destination for rotation. But I agree with the article — it's early days. Let the Nasdaq settle first.
J < We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.