The Nasdaq crash in the US by about 5 per cent is an indication that the AI bubble may burst and if the AI trade cools down and reverse, that can trigger reversal of foreign portfolio investors (FPI) outflows to the Indian markets, analysts said on Sunday. 

In May, FPIs net sold equity for Rs 32,963 crore. The sustained selling continued in early June, too. The total selling in June (up to 6th) stood at Rs 42,926 crore, taking the total selling in 2026, so far, to Rs 283,662 crore, as per NSDL data.

Considering the significance of FPI inflows to finance the current account deficit and the Balance of Payments gap, the Central Bank and the government initiated several steps to attract FPI.

“The measures like exemption of interest and capital gains from FPI investment in government securities from taxation announced by the government, followed by announcements in the monetary policy like the RBI absorbing the hedging costs on FCNR deposits mobilised by commercial banks, increase in forex swap window, increased access to government bonds through the FAR route and increased limit for NRIs and OCIs to invest in the Indian equity market will pave the way for forex inflows into India,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.

This has also helped in the stabilisation of the rupee. The rupee which had depreciated to a low of 96.96 has appreciated to 94.94 on June 5. This is a positive development. 

“However, if FPIs are to invest in India, the AI trade which has been the principal driver of FPI outflows away from India should change. There are early signs of this happening,” the analyst noted.

Markets ended last week lower, with the benchmark indices, Nifty and Sensex, declining amid concerns over geopolitical tensions and uncertainty in global trade. 

However, supportive domestic macroeconomic cues helped limit the extent of the decline, said analysts.