Indian investors are diversifying their portfolios by increasingly looking beyond domestic markets, with a notable shift towards global equities and international mutual funds. This trend is largely driven by the muted performance of Indian benchmarks compared to robust returns seen in overseas markets, especially those benefiting from the artificial intelligence (AI) boom.
Global Markets Outperform Indian Equities
In the past year, major Indian indices like the Sensex and Nifty have seen declines of up to 4 percent. In stark contrast, global markets have delivered substantial gains. US benchmarks, the S&P 500 and Dow Jones Industrial Average, surged by 20-30 percent. Markets in Korea and Taiwan experienced even more dramatic growth, soaring by 100-190 percent, primarily fueled by demand for AI-driven semiconductors.
AI Theme Drives International Fund Returns
The AI theme has been a significant catalyst for international fund performance. Over the past three years, international mutual fund categories have delivered an impressive compounded annual return of 27.50 percent, significantly outperforming domestic equity large-cap funds, which returned 14 percent. In the last year alone, international funds yielded 55 percent, while domestic large-cap equities managed a modest 3 percent.
Several international funds have more than doubled investor money in the past year. Notable examples include Nippon India Taiwan Equity, which saw a 237 percent increase, Mirae Asset Global Electric & Autonomous Vehicles with 113 percent, and DSP World Gold Mining Overseas Equity at 112 percent.
Surge in Direct Global Investment
Beyond mutual funds, direct investment by Indians into global equities and debt has also seen a sharp uptick. Between April 2025 and February 2026, Indian investors directly invested $2.2 billion in global markets, marking a 60 percent year-on-year increase. This signifies a growing appetite among Indian investors to reduce home-market bias and capitalize on global opportunities.
Foreign Outflows from India
Adding to the pressure on domestic markets, foreign investors have been net sellers in Indian equities. In 2026, foreign institutional investors (FIIs) sold Rs 2,06,180 crore, following outflows of Rs 1,66,286 crore in 2025. This has left Indian markets heavily reliant on domestic flows, primarily through mutual funds, highlighting the importance of local investor sentiment amidst global shifts.