India’s Finance Minister, Nirmala Sitharaman, attributes the recent underperformance of the country’s equity market to excess liquidity and the ease of investor exits. Despite robust economic growth, key indices have fallen nearly 12% since January, exacerbated by significant foreign capital outflows.
Sitharaman also expressed confidence that India would be insulated from potential fallout if a global AI bubble were to burst, noting the nation’s limited involvement in AI-specific investments.
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India's key benchmark indices have seen a significant downturn, slipping nearly 12% since January. Despite resilient economic growth amidst global trade uncertainty and geopolitical shocks, the equity market's underperformance is being attributed by Finance Minister Nirmala Sitharaman to two primary factors: the ease with which investors can exit the market due to abundant liquidity, and the broader trend of capital outflows.
"Because of the ease of liquidity, ease of availability, people are even exiting easily" from equities, Sitharaman stated in an exclusive interview with CNBC on the sidelines of the IMF-World Bank meetings in Bangkok. She emphasized, however, that the underlying economic fundamentals of India remain robust.
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.
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The Finance Minister identified capital outflows as a significant risk for India in 2027. This trend is corroborated by data showing foreign investors divesting over $33 billion in Indian equities this year. Consequently, India's market weighting in the MSCI Asia Pacific ex-Japan index has shrunk to 10%, a notable decrease from previous years, while markets like Taiwan and Korea, which are strong in AI-related industries, have seen increased investment flows.
Despite these outflows, domestic capital continues to pour into the market, with Indian equity mutual funds experiencing consistent net inflows since March 2021. Furthermore, multinational companies, private equity funds, and foreign investors have successfully executed exits, often at a premium. An EY report highlighted that a substantial 63% of the $60.4 billion collectively raised through Indian IPOs between 2021 and 2025 went to existing shareholders selling their stakes.
Sitharaman also addressed concerns about a potential global artificial intelligence bubble burst. She expressed confidence that India would not be significantly impacted by any spillover effects, given that the country has not attracted substantial AI-specific investments compared to other jurisdictions. She asserted that India is actively investing in advanced technologies, including semiconductor manufacturing, and is no longer a laggard in the frontier tech space.
