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Matthias Knab, Opalesque for New Managers: Foreign investors have pulled more capital out of India in the first half of 2026 than in any full year this century. At the same time, Indian corporate earnings have stopped falling, started beating expectations, and the economy is reaccelerating. In the first article of this three-part series, Nishchay Goel, Founder and Chief Investment Officer of Duro Capital, reconstructs the mechanics of the exodus - who sold, why, and in what sequence - and explains why he believes the sellers are now a year behind the story.
The numbers are stark. As of June 30th, 2026, $30 billion of foreign capital has left Indian equities this year. That is the highest outflow India has recorded in any year this century - and it is only a half-year figure. It follows 2025, which itself had set the previous record. Two record outflow years, back to back.
To understand how India went from being one of the world's hottest markets to its most sold, you have to go back to late 2023, says Nishchay Goel, Founder and CIO of Duro Capital, a Singapore-based, MAS-regulated investment manager that has run foreign institutional capital in Indian equities for over 15 years through offshore long-short and long-only strategies.
Act one: a self-inflicted slowdown
"From COVID until mid-2024, the Indian markets were on fire," Goel recalls. "Earnings growth was north of 25%, combined with a decent increase in the PE valuations of the market, which led to remarkable returns for investors."
Then the Reserve Bank of India - "probably one of the best-run central banks on the planet," in Goel's words - did what prudent central banks do at the top of a credit cycle: it put on the brakes. Starting around November 2023, the RBI made credit growth more difficult, demanded higher risk weights from lenders, and restricted certain kinds of unsecured lending.
"Credit growth is the fuel that drives most economies," Goel says. "This led to the start of a much-needed slowdown to that 25%-plus earnings growth - and it happened at a time when valuations of the market were already on the higher side. So it was a double whammy: earnings started to slow down while you were sitting on high valuations."
The result was not a crash, but a grinding de-rating. By September 2024, foreign capital started leaving in size. "It kept self-reinforcing," Goel explains. "The self-inflicted pause by the Reserve Bank of India slowed the economy, which converted into slower earnings growth, which led to foreigners pulling capital out, which led to valuations falling - and the loop fed on itself. That is how the exodus started."
The damage to the earnings picture was real: growth fell from the 20-25% range to roughly the 10% level in fiscal year 2026, which ended March 31st, 2026.
Act two: AI rewires the flows
What began as a rational response to slowing earnings, however, morphed into something else entirely. The selling continued long after the fundamental reason for it had faded - and here Goel points to a culprit few India commentators talk about: the AI trade.
"Think about what has happened in Korea and Taiwan. These countries are direct beneficiaries of the AI buildout, and their country indices went up so significantly that it created a mismatch in allocator portfolios that are benchmarked to MSCI ACWI-type indices," he says. "A lot of investors found they needed to take up their Korea allocations and their Taiwan allocations. Where did the money come from? It came from some of the largest allocations in the emerging markets portfolio - one of which was India."
In other words, the second and larger leg of the exodus has little to do with India's fundamentals at all. It is a mechanical, benchmark-driven rebalancing out of the region's underperformer and into its AI winners.
"While the initial trigger of foreign money leaving was a slowing economy and higher valuations, the pendulum has now swung significantly to the other side," Goel says. "The exodus has continued despite the fact that the slowdown is complete and we are bouncing off the bottom."
Act three: The turn nobody is positioned for
This is where Goel sees the opportunity - and he frames it in the classic language of contrarian investing. "The best opportunities for any fund manager present themselves when you have a combination of two things: one, when the economy is improving, and two, when investors don't believe it is. That is when you have the real outsized alpha."
Duro flagged the turn early, and in writing. "In our quarterly letters in October 2025, we wrote at length about how we were seeing from our portfolio companies' commentary that the December quarter would probably be the bottom of the slowdown triggered by the Reserve Bank of India," Goel says. "And we saw evidence of this in March 2026, when for the first time in many quarters, earnings beat expectations - which meant expected earnings were being raised, not cut. We have continued to see that since."
The pattern held into the June 2026 quarter, where early results again show India coming back - while the foreign capital does not. For fiscal year 2027, Duro expects Indian earnings growth to recover from roughly 10% to at least the mid-to-high teens, despite the disruption from the conflict in the Middle East, which was in nobody's projections last October.
The arithmetic from there is straightforward, Goel argues: "If earnings grow at mid-to-high teens, and you add even a little bit of valuation rerating - and it will happen when capital comes back - you could very well see 25% IRRs from here."
Why the gap can persist - and why it won't forever
Two forces keep the window open. The first is positioning: after $30 billion of selling in six months, on top of a record 2025, foreign ownership sentiment toward India is, in the words of Goel's colleague Parikshit Shah, "extremely negative." Flows that mechanical rarely reverse on a dime.
The second is the domestic bid that has quietly absorbed all of it. "Everything that is being sold by foreigners is being met by Indians," Goel notes. "Indians today are putting $60 billion of new capital every year into Indian equities - and they are still at only 6 to 7% of household savings in equities. In the US that number is 40 to 50%. We are not saying India goes there. But imagine it just goes to 12% - you suddenly have $120 billion coming in every year from domestic capital. We have that structural support for the next 25 years. The marginal change will come when the foreigners come back, and those flows will take valuations up significantly."
Record foreign selling, a bottoming earnings cycle, and a structural domestic buyer underneath it all: that is the setup. In the second article of this series, Goel and Parikshit Shah go inside the Indian economy itself - the credit growth recovery, the GST cuts and income tax reform flowing straight into corporate P&Ls, and the question every dollar-based allocator asks first: what about the rupee?
Webinar: "India's Foreign Investor Exodus: A Warning or An Opportunity?" - Nishchay Goel and Parikshit Shah of Duro Capital present their thesis live on Thursday, September 24th at 11am ET (4pm UK, 5pm CET, 6pm Riyadh, 7pm Dubai, 8:30pm Delhi). Register here to reserve your place and submit questions in advance: www.opalesque.com/webinar. A replay will be provided to all registrants.
This article is for informational purposes only and does not constitute investment advice or an offer to sell securities. Past performance does not guarantee future results. Investors should conduct their own due diligence and consult with qualified advisors before making any investment decisions.
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