India’s benchmark stock market indices have fallen nearly 12% since January, despite resilient economic growth, as foreign investors withdraw capital and global investment flows increasingly favour artificial intelligence-related markets, Finance Minister Nirmala Sitharaman has warned. She identified continued capital outflows as one of the biggest risks facing India in 2027, while maintaining that the country’s economic fundamentals remain sound.
Speaking to CNBC in an interview on the sidelines of the IMF-World Bank meetings in Bangkok on Friday, Sitharaman said abundant liquidity in India’s equity market had contributed to its underperformance and could continue to exert pressure. “Because of the ease of liquidity, ease of availability, people are even exiting easily” from equities, she said, adding that the fundamentals of the Indian economy were “fine”.
The market decline has come despite India’s ability to sustain economic growth amid trade uncertainty and geopolitical shocks. According to LSEG data cited in the report, the country’s key benchmark indices have dropped nearly 12% since the beginning of the year. Foreign investors have recorded substantial withdrawals from Indian equities, with Sitharaman warning that the continuation of these outflows could pose a significant challenge in the coming year.
Domestic investment, however, continues to provide support. Indian equity mutual funds have recorded net inflows every month since March 2021, according to data released earlier this month by the Association of Mutual Funds in India. This sustained participation by domestic investors has helped maintain liquidity even as international investors reduce their exposure to Indian shares.
The market has also provided opportunities for existing shareholders to sell their investments. Multinational companies, private equity funds and foreign investors have been able to make partial or complete exits at a premium. An EY report published in August found that Indian initial public offerings raised a combined $60.4 billion between 2021 and 2025. Of that amount, $37.7 billion, or 63% of total proceeds, went to existing shareholders selling their stakes rather than to companies raising new capital.
Foreign portfolio investors have sold more than $33 billion in direct Indian equities so far this year, according to data from Indian depository firm NSDL. Sitharaman said the movement of international capital towards artificial intelligence investments and the United States was a concern, as investors redirected funds away from markets such as India.
The shift is reflected in regional market weightings. Taiwan now accounts for 29% of the MSCI Asia Pacific ex-Japan index, while South Korea represents 22%, according to a Goldman Sachs report dated 8 October. India’s weighting has declined from 19% a few years ago to 10%, the report said. Both Taiwan and South Korea have attracted strong investment flows linked to their artificial intelligence industries.
India has consequently acquired a reputation as an alternative to the AI investment trade, but Sitharaman said the country would not be “hurt” if a global artificial intelligence bubble burst. She argued that India had not received the same scale of AI-related investment flowing into other markets, limiting its exposure to a potential reversal.
“The AI kind of investments coming into different jurisdictions” had not flowed into India to the same extent, she said, explaining her assessment of the potential impact of a market correction.
Sitharaman also rejected the suggestion that India remained behind in advanced technology. The country was “no longer a laggard” in frontier technology, she said, pointing to investments being made to establish semiconductor manufacturing.
Her warning about capital outflows comes as India seeks to sustain investor confidence despite falling equity indices and changing global investment priorities. While domestic mutual fund inflows remain consistent, the finance minister identified the continued withdrawal of foreign capital as a key risk for the country’s economic and financial outlook in 2027.
