Indian retail investors have funneled $2.3 billion into global equities as domestic stocks underperform. Many are using GIFT City vehicles to bypass investment caps, seeking exposure to AI and international growth. Investors should be cautious, however, as some foreign-focused ETFs are currently trading at significant premiums over their true asset value.
Indian retail investors are increasingly shifting their capital to global equity markets, with total investments in international assets reaching $2.3 billion in early 2026. This shift is largely driven by a performance gap in the domestic market, where the Nifty 50 index has seen a decline of 5.3% over the last two years. In contrast, major global benchmarks like the S&P 500 and the MSCI Emerging Markets Index have posted significant growth of 32% and 47% respectively during the same period. Investors are looking to capture these global gains, particularly in the artificial intelligence sector, which is heavily concentrated in international markets and has limited representation in domestic portfolios.
To facilitate this access, many asset managers are utilizing GIFT City, a tax-neutral financial hub in Gujarat. Standard domestic mutual funds are constrained by a cumulative investment cap of $7 billion set by the Reserve Bank of India, which has led many popular schemes to limit or stop new inflows. Vehicles launched through GIFT City operate under a different regulatory framework, allowing fund houses to bypass these specific limits. Major players, including JioBlackRock, HDFC Asset Management, Parag Parikh, and Aditya Birla Sun Life, have launched new products in this space to meet the growing retail demand for foreign exposure.
While diversifying into global markets is a common investment strategy, the current wave of interest comes with notable risks. One of the most immediate issues is the supply-demand gap in locally listed foreign exchange-traded funds. Because the supply of these units is restricted, some funds have been trading at premiums as high as 80% over their actual net asset value. When an investor buys an ETF at such a high premium, they are paying for the scarcity of the units rather than the value of the underlying shares. If the market supply increases or the investor demand cools, this premium can shrink rapidly, causing the investor to lose capital even if the underlying global stocks perform well.
Additionally, investors often use these international funds to hedge against the depreciation of the Indian rupee. Since these assets are denominated in foreign currencies, they can provide a buffer for a portfolio that is otherwise entirely exposed to the domestic currency. However, this strategy is complex, as currency fluctuations can also negatively impact returns if the rupee strengthens. As regulatory authorities monitor these significant capital outflows, investors should focus on the risks of trading in markets with different time zones, regulatory standards, and tax implications. The ultimate success of this international diversification will depend on careful fund selection, the cost of entry, and the ability of investors to navigate these unfamiliar dynamics.