Global Funds Reconsider Indian Stocks as Oil and Rupee Pressures Ease

Global fund managers are reassessing Indian stocks after a sharp easing in oil prices and renewed stability in the rupee improved the macro backdrop for Asia’s third-largest economy. Reuters reported that overseas selling of Indian equities has slowed in recent weeks, while Elara Capital analysis showed inflows into U.S.-listed India-focused exchange-traded funds turning positive last week for the first time in more than a month. The shift matters because foreign investors had been reducing exposure to India due to expensive valuations, currency weakness, oil-price pressure, and stronger momentum in AI-linked markets such as Taiwan and South Korea.

India is especially sensitive to oil because it imports nearly 90% of its crude requirements, making higher energy prices a direct threat to inflation, the current-account balance, and the rupee. During the Middle East conflict, higher crude prices and foreign portfolio outflows pushed the rupee to a record low near 97 per U.S. dollar in May. Since then, the currency has recovered to around 94.50 per dollar and became one of Asia’s better-performing currencies in June, helped by lower crude prices and policy measures designed to attract dollar inflows.

The easing of those pressures has made India more investable again, but the recovery is still selective rather than broad-based. Reuters cited fund managers who said India had become one of the most oversold markets they tracked, and some global investors are now reducing underweight positions by adding to existing high-conviction holdings. M&G portfolio manager Vikas Pershad said additional capital for India was freed up by scaling back positions in South Korea and Taiwan, where the AI-driven rally had attracted strong flows. This does not mean investors are abandoning North Asian tech markets, but it does suggest that some funds are rotating back toward India as the oil shock fades and valuation gaps become less stretched.

Policy support has also helped rebuild confidence. Earlier in June, India announced measures to attract foreign capital, including scrapping capital gains tax for foreign holders of government bonds and removing a 20% withholding tax on bond interest income. The Reserve Bank of India also expanded the pool of sovereign securities eligible under the Fully Accessible Route and introduced steps to encourage dollar inflows. These measures have already supported the debt market: foreign investors bought a record $3 billion of Indian government bonds in June, far above the roughly $1.7 billion purchased during the January-May period.
The remaining question is whether Indian equities can earn a sustained rerating through stronger corporate earnings. Many fund managers still argue that lower oil prices and currency stability are helpful, but not enough by themselves. Reuters noted that India’s earnings growth has been limited to single digits over the past two fiscal years, though analysts expect it to accelerate to the mid-teens in the current and coming fiscal years. The finance ministry has also said easing commodity prices may help contain inflation, but risks from the Middle East conflict and uneven monsoon rainfall remain. In other words, India’s macro stress has cooled, but investors still need proof that earnings growth can justify the market’s relatively full valuations.