India’s benchmark equity indexes have fallen nearly 12% since January, even as the country’s broader economy has shown resilience against trade uncertainty and geopolitical pressures.
Finance Minister Nirmala Sitharaman told CNBC in an exclusive interview that excess liquidity is a key driver of market underperformance, and the problem may persist going forward.
“Because of the ease of liquidity, ease of availability, people are even exiting easily” from equities, Sitharaman said on the sidelines of the IMF-World Bank meetings in Bangkok on Friday.
Despite the market’s struggles, Sitharaman maintained that the fundamentals of the Indian economy are “fine,” signaling confidence in the country’s underlying growth story.
Foreign investors have been pulling capital out of Indian equities at a record pace, with foreign portfolio investors selling over $33 billion in direct Indian equities so far this year, according to Indian depository firm NSDL.
Sitharaman identified continued capital outflows as one of the biggest risks facing India heading into 2027, as global investors increasingly redirect money toward artificial intelligence-driven markets.
India has gained a notable reputation as an anti-AI trade, while markets like Taiwan and Korea, home to major AI champions, have attracted significantly stronger investment flows from global funds.
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 same index has compressed from 19% a few years ago to just 10%, reflecting the broader shift in investor appetite toward technology-heavy markets.
The flight of capital toward AI and the U.S., which otherwise moves toward different countries for different sectoral investments, is “a concern,” Sitharaman added during the interview.
However, domestic capital has continued to flow steadily into Indian markets, with equity mutual funds recording net inflows every 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 selling shares to the public, an EY report found.
Sitharaman said India would not be “hurt” from any spillover if the global AI bubble burst, noting that India has not received the “AI kind of investments coming into different jurisdictions.”
Sitharaman, India’s longest-serving finance minister to hold the office continuously, said the country was “no longer a laggard” in frontier technology and was actively investing in semiconductor manufacturing capacity.
