The recent 5 per cent decline in the Nasdaq index has sparked fresh concerns about a potential slowdown in the artificial intelligence (AI) investment boom, with market experts suggesting that a cooling AI trade could lead to a reversal of foreign portfolio investor (FPI) outflows from India.
🔹 Nasdaq fell nearly 5%, triggering concerns about a potential AI bubble correction.
🔹 FPIs sold Indian equities worth Rs 32,963 crore in May 2026.
🔹 Total FPI outflows in 2026 have crossed Rs 2.83 lakh crore.
🔹 Government and RBI measures aim to attract foreign investment back to India.
🔹 Analysts believe a cooling AI trade could reverse FPI outflows from Indian markets.
🔹 The rupee strengthened from 96.96 to 94.94 against the US dollar.
New Delhi, June 08: According to analysts, the AI-driven rally in US technology stocks has been one of the key reasons global investors diverted capital away from emerging markets such as India. However, with signs emerging that the AI trade may be losing momentum, India could once again attract significant foreign investment flows.
Foreign portfolio investors remained aggressive sellers in Indian equities during recent months. According to NSDL data, FPIs sold equities worth Rs 32,963 crore in May, while the selling trend continued into June. As of June 6, net FPI selling in June stood at Rs 42,926 crore, taking the total outflow in 2026 so far to Rs 2.83 lakh crore.
Recognising the importance of foreign capital in financing India’s current account deficit and balance of payments requirements, the government and the Reserve Bank of India have introduced several initiatives designed to attract overseas investors.
Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments Ltd., stated that measures such as tax exemptions on interest and capital gains arising from FPI investments in government securities, along with monetary policy initiatives by the RBI, are expected to encourage fresh foreign exchange inflows into the country.
Additional measures include the RBI absorbing hedging costs on FCNR deposits mobilised by commercial banks, expansion of the forex swap window, enhanced access to government bonds through the Fully Accessible Route (FAR), and increased investment limits for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) in Indian equities.
These policy measures have also contributed to strengthening the Indian currency. The rupee appreciated from a low of 96.96 to 94.94 against the US dollar on June 5, reflecting improved investor confidence and stability in the foreign exchange market.
Analysts noted that a sustained revival in FPI inflows will depend significantly on global investment trends, particularly developments surrounding the AI sector. Since the AI boom has attracted substantial international capital into US technology stocks, any slowdown or correction in that segment could encourage investors to reassess emerging market opportunities, including India.
Indian equity markets ended the previous week in negative territory, with both the Sensex and Nifty closing lower amid concerns over geopolitical tensions and uncertainty surrounding global trade conditions. However, strong domestic macroeconomic fundamentals helped limit the losses and provided support to investor sentiment.
Market participants will closely monitor global technology stocks, US economic indicators, and foreign investment trends in the coming weeks to determine whether India could witness a meaningful return of overseas capital.
The recent Nasdaq decline has intensified discussions around the sustainability of the AI-driven market rally. While foreign investors have pulled substantial funds from Indian equities in 2026, a slowdown in AI-related investments could alter global capital flows. Combined with supportive policy measures from the government and RBI, India may be well-positioned to attract renewed foreign investment if global investors begin seeking opportunities beyond the US technology sector.
Q1. Why is the Nasdaq decline significant for India?
The Nasdaq decline could signal a slowdown in the AI investment boom, potentially encouraging foreign investors to shift capital back to emerging markets like India.
Q2. How much have FPIs sold in Indian equities in 2026?
FPIs have sold approximately Rs 2.83 lakh crore worth of Indian equities so far in 2026, according to NSDL data.
Q3. What steps have been taken to attract FPIs to India?
The government and RBI have introduced tax exemptions, improved access to government bonds, expanded forex facilities, and increased investment limits for NRIs and OCIs.
Q4. How has the rupee performed recently?
The rupee appreciated from 96.96 to 94.94 against the US dollar, indicating improved stability in the foreign exchange market.
Q5. Could FPIs return to Indian markets?
Analysts believe that if the AI trade weakens and global investors diversify away from US technology stocks, India could see a revival in foreign investment inflows.
