India's Finance Minister Nirmala Sitharaman has pointed to an abundance of liquidity and the ease with which investors can exit the equity market as primary factors contributing to its recent underperformance. Speaking exclusively to CNBC on the sidelines of the IMF-World Bank meetings in Bangkok, Sitharaman stated, "Because of the ease of liquidity, ease of availability, people are even exiting easily" from equities, while affirming the strong fundamentals of the Indian economy.
Nirmala Sitharaman, India's finance minister, during the International Monetary Fund (IMF) and World Bank annual meetings in Bangkok, Thailand, on Thursday, Oct. 15, 2026.
Since the beginning of the year, India's key benchmark indices have seen a nearly 12% decline, despite the nation's economic growth remaining robust amidst global trade uncertainties and geopolitical disruptions. A significant challenge identified by Sitharaman for 2027 is the continued capital outflows from foreign investors, which have reached record levels in the Indian equity markets.
In contrast to foreign divestment, domestic capital continues to flow robustly into the market, with Indian equity mutual funds recording net inflows every month since March 2021. This trend is further evidenced by a recent EY report, which highlighted that between 2021 and 2025, a staggering 63% ($37.7 billion) of the total $60.4 billion raised through Indian initial public offerings was directed to existing holders selling their shares to the public.
The 'Anti-AI' Stance and Global Capital Shifts
India has been characterized as an 'anti-artificial intelligence trade' in global investment circles, with foreign portfolio investors divesting over $33 billion in direct Indian equities this year. This capital flight has largely gravitated towards markets like Taiwan and Korea, which host prominent AI champions and have consequently attracted substantial investment flows.
The shift of capital towards AI-centric economies and the United States, departing from more diverse sectoral investments, is a stated concern for Sitharaman. Goldman Sachs noted in an October 8 report that Taiwan now holds the largest market weighting in the MSCI Asia Pacific ex-Japan index at 29%, with Korea second at 22%. India's share, in stark contrast, has compressed from 19% a few years ago to just 10%.
However, as the global AI rally begins to show signs of instability, Sitharaman expressed confidence that India would remain largely unscathed should an AI bubble burst. She clarified that India has not received the same scale of AI-related investments as other jurisdictions. Furthermore, the veteran finance minister, India's longest-serving in continuous office, emphasized that the South Asian nation is no longer lagging in frontier technology, actively investing in establishing semiconductor manufacturing capabilities.
