New Delhi [India], October 29 (ANI): Foreign portfolio investor (FPI) outflows from Indian equities are being driven by three major factors, including the global rush towards artificial intelligence (AI)-related investment opportunities, rising government bond yields in developed economies and relatively high valuations in Indian stock markets, according to Ranen Banerjee, Partner and Leader, Government and Public Sector (GPS), PwC India.

The observations come amid sustained selling by foreign investors, who have withdrawn a net Rs 2.96 lakh crore from Indian equities so far in 2026.

In an exclusive interview with ANI, Banerjee said that global capital is increasingly chasing AI-related investment opportunities, which remain relatively limited in India compared to other major markets, leading investors to redirect funds towards other geographies.

'One is that a lot of money is chasing, AI-relevant investment opportunities... since those opportunities are fewer in India compared to other geographies, therefore there is obviously an attraction for that capital to go out,' he said.

Highlighting the second factor, Banerjee pointed to rising government bond yields across major developed economies, which are making investments in these markets more attractive compared to rupee-denominated assets.

He noted that yields on 10-year government securities have crossed 5 per cent in the United States and the United Kingdom, while those in Japan have exceeded 3 per cent.

'Now, when an investor is getting that kind of a dollar return or a euro return or a pound return or a yen return, then obviously that puts pressure on a rupee investment because the rupee returns are going to be lower,' he said.

On the third factor, Banerjee highlighted that Indian equities have been considered overvalued, reducing their attractiveness to foreign investors.

'The third aspect is that the Indian markets were considered overvalued, and therefore the attractiveness of the stocks had been lower because of the overvaluation,' he said.

The sustained selling by foreign investors is also reflected in monthly FPI flow data, with March recording the highest outflow of over Rs 1.17 lakh crore, followed by April at Rs 60,847 crore and June at Rs 49,340 crore.

In October, FPIs withdrew Rs 36,164 crore from Indian equities as of October 28, following outflows of Rs 35,861 crore in September.

However, foreign investors recorded net inflows during February, July and August, amounting to Rs 22,615 crore, Rs 20,200 crore and Rs 29,631 crore, respectively.

Despite the continued outflows, Banerjee indicated that the prolonged period of weak market returns could gradually make Indian equities more attractive to foreign investors as valuations undergo correction.

'Now we know that two years have passed with almost negative returns if you look at the indices. So that kind of indicates that there is a correction that is happening over this period of time. And at some point in time, it will start looking attractive,' Banerjee added. (ANI)