During the March 2026 quarter, foreign institutional investors (FIIs) withdrew approximately $5 billion from India-focused offshore funds and exchange-traded funds (ETFs), raising questions about the sustainability of India's growth narrative. Himanshu Srivastava, Principal Analyst at Morningstar India, suggests that these outflows reflect a combination of global risk aversion, high US bond yields, and geopolitical tensions rather than a fundamental loss of confidence in India's long-term economic potential. He emphasizes that domestic investors have shown resilience, cushioning the market from deeper corrections. Srivastava notes that foreign investors are becoming increasingly valuation-sensitive, particularly in the mid- and small-cap segments, leading to profit-booking amid elevated valuations. While passive investing is gaining traction, with ETFs proving more resilient than actively managed funds, active management remains crucial for long-term allocations in India. Despite the recent volatility, Srivastava believes that India will continue to play a significant role in global emerging market portfolios, with its weight potentially rising further if fundamentals remain strong.