Bank of America Global Research warns that foreign investors are likely to keep selling Indian equities well into 2027. The research note points to a growing appetite for Asian AI champions, which appear to promise higher earnings at lower multiples than many Indian stocks. As capital chases those prospects, pressure on the Indian market could intensify markedly.

The shift reflects a broader reallocation from emerging‑market funds toward sectors where valuation gaps seem widest. Investors cite faster revenue growth and stronger profit margins among AI‑focused firms in China, South Korea and Japan, making them attractive relative to Indian companies still grappling with slower reform and currency volatility. Consequently, foreign fund inflows to India may turn negative for the next two years.

Market participants should monitor the pace of AI earnings upgrades and any policy steps that could stem the outflow. A sustained sell‑off would weigh on the Nifty and Sensex, potentially depressing corporate financing costs and slowing merger activity. With still foreign money a key driver of Indian market depth, its retreat may reshape capital allocation for years to come.