India’s benchmark equity indexes have fallen nearly 12% since January, even as the country’s broader economic fundamentals remain resilient amid global trade tensions and geopolitical instability.
Finance Minister Nirmala Sitharaman has pointed to excess liquidity and the ease of exiting equity positions as key drivers behind the market’s persistent underperformance throughout 2026.
“Because of the ease of liquidity, ease of availability, people are even exiting easily” from equities, Sitharaman told CNBC in an exclusive interview on the sidelines of the IMF-World Bank meetings in Bangkok.
Despite the market weakness, Sitharaman stressed that the fundamentals of the Indian economy are “fine,” signalling confidence in the country’s underlying growth trajectory.
India has recorded substantial foreign investor outflows from its equity markets this year, with foreign portfolio investors selling direct Indian equities worth over $33 billion, according to Indian depository firm NSDL.
Sitharaman identified continued capital outflows as one of the biggest risks facing India heading into 2027, acknowledging that the trend poses a meaningful challenge to market stability.
Domestic capital has continued to flow into Indian markets, with Indian equity mutual funds recording net inflows every single month since March 2021, according to the Association of Mutual Funds in India.
Between 2021 and 2025, Indian initial public offerings collectively raised $60.4 billion, of which “a staggering” $37.7 billion, or 63% of total proceeds, went to existing holders who sold their shares to the public, according to an EY report.
India has increasingly gained a reputation as an anti-artificial intelligence trade, while markets such as Taiwan and Korea, which host major AI champions, have attracted strong and sustained investment flows.
Taiwan now holds the largest market weighting in the MSCI Asia Pacific ex-Japan index at 29%, while Korea has moved into second place at 22%, according to a Goldman Sachs report from October 8.
India’s share in that index has compressed from 19% a few years ago to just 10%, reflecting the scale of capital rotation toward AI-driven markets in the region.
The global flight of capital toward AI and the United States, which otherwise moves toward different countries for different sectoral investments, is “a concern,” Sitharaman said.
However, she argued that India would not be “hurt” from any spillover should the global artificial intelligence bubble burst, noting that India has not received the “AI kind of investments coming into different jurisdictions.”
Sitharaman, who is India’s longest-serving finance minister to hold the office continuously, said the country was “no longer a laggard” in the frontier technology space, with investment being directed into semiconductor manufacturing.