India’s domestic institutional investors stepped in with their largest purchase of local stocks in four months on Thursday, providing a crucial cushion to a market that was reeling from President Donald Trump’s recent escalation of tariffs.
This powerful show of domestic support helped to offset foreign outflows and stabilize the benchmark NSE Nifty 50 Index.
Local funds, including mutual funds and insurers, bought a net 108.6 billion rupees ($1.2 billion) worth of shares on Thursday.
This buying spree was partly spurred by large block deals, with significant sell-downs in Kotak Mahindra Bank Ltd. and Eternal Ltd. providing an opportunity for domestic institutions to step in as key buyers.
This is not a new phenomenon. Domestic institutions have consistently played the role of a stabilizing force in the Indian market during periods of downturn in recent years.
In 2025 alone, they have purchased shares worth approximately $50 billion, a figure that dramatically dwarfs the more than $11 billion in net sales by foreign investors over the same period. This trend highlights the growing strength and influence of domestic capital in shaping the Indian equity market’s trajectory.
A pause in the emerging market rally amid renewed tensions
While Indian funds provided local support, the broader rally in emerging-market assets appeared to stall in Asia on Friday.
A Bloomberg gauge tracking developing nation stocks edged lower, though it remains on track for a 2.2% gain for the week, which would be its biggest since June.
Similarly, MSCI’s gauge for emerging-market currencies was little changed but is sitting on a 0.6% rally for the week as the US dollar has slid.
Investors are heading into the weekend on edge, as trade tensions with the US resurface.
The escalating dispute between the US and India is a key concern, while President Trump has also signaled that fresh sanctions on Russia may be announced as early as Friday.
Adding to the unease, US Treasury Secretary Scott Bessent stated that levies on China “could be on the table” over its purchases of Russian oil.
Furthermore, a slate of key US economic data due next week, particularly the inflation print, could test the market’s current expectations that the Federal Reserve will ease its monetary policy in September.
“There could be some caution heading into the weekend, but generally markets are waiting for the US inflation print next week,” commented Eddie Cheung, a senior emerging markets strategist at Credit Agricole CIB.
That is the near-term risk to the ‘weaker US dollar’ narrative which has fueled EM FX.
The bigger picture: a strong year for emerging markets, but will it last?
This period of consolidation comes after a very strong rally for emerging markets this year. Bloomberg’s gauge of emerging-market equities has rallied almost 15% in 2025, significantly outpacing the 11% rise seen in their developed market peers.
MSCI’s index of EM currencies has also added an impressive 6.4% this year, with Latin American and Eastern European currencies experiencing particularly strong surges.
This rally has been largely fueled by a weakening US dollar, as questions mount over the sustainability of US policy.
Despite the near-term caution, some traders anticipate that the rally may extend further.
A renewed diplomatic push to end the Russia-Ukraine war could help to underpin gains in Eastern Europe, while signs of a slowing US economy and an increase in bets on US policy easing could continue to weigh on the dollar.
“We still look for structural US dollar weakness over the medium term,” said Lloyd Chan, a strategist at MUFG Bank in Singapore.
This, along with market pricing for 130bps US rate cut through end-2026, could provide further tailwinds for several emerging market stocks and currencies.
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