New Delhi, April 9 -- There is a prevailing narrative in domestic markets that as US Treasury yields drift lower, a tide of foreign capital will inevitably wash into India. The logic is intuitive: lower US yields compress the risk-free rate, prompting global investors to seek alternatives in higher-growth emerging markets like India. But intuitive logic and market reality often diverge, and today, they diverge meaningfully.

With the 10-year US Treasury yield hovering around 4.28%, the case for a meaningful, sustained influx of overseas capital into India remains dim. But why is that the case?

For global institutional investors, including sovereign wealth funds, pension funds, and large asset managers, allocation decisions are not driven...