Finance Minister Nirmala Sitharaman has linked the underperformance of Indian equities to abundant liquidity and the ease with which investors can exit their positions, even as she maintained that India’s underlying economic fundamentals remain sound. Speaking to CNBC on the sidelines of the International Monetary Fund and World Bank annual meetings in Bangkok, she highlighted the pressure from foreign capital outflows and the growing concentration of international investment in artificial intelligence-linked markets. Her remarks come as Indian benchmark indices have struggled in 2026 despite continued domestic investment in equities.
Foreign portfolio investors have sold more than $33 billion worth of Indian equities so far this year, according to data cited from India’s National Securities Depository Limited. At the same time, domestic equity mutual funds have continued attracting net inflows, providing a counterweight to foreign selling. Sitharaman identified continued capital outflows as one of India’s major market risks for 2027, while pointing to changing global investment preferences and the high proportion of Indian IPO proceeds that have gone to existing shareholders selling their holdings.
Key Takeaways
- Finance minister’s view: Sitharaman says excess liquidity and the ease of exiting investments are contributing to Indian equities’ underperformance.
- Market performance: India’s benchmark indices have declined nearly 12% since January, according to data cited in recent reporting.
- Foreign investor selling: Foreign portfolio investors have sold more than $33 billion in Indian equities so far in 2026.
- Domestic support: Indian equity mutual funds have recorded monthly net inflows since March 2021.
- AI-driven capital shifts: Taiwan and South Korea have attracted stronger investor interest because of their exposure to AI-related companies.
- IPO exits: Existing shareholders received approximately 63% of the proceeds raised through Indian IPOs between 2021 and 2025.
- Risk for 2027: Continued capital outflows could place further pressure on Indian markets if global investors continue reallocating funds.
Why Sitharaman Is Concerned About India’s Stock Market
Sitharaman’s comments highlight a disconnect between India’s economic performance and the returns investors are receiving from its equity market.
Economic growth, domestic consumption, corporate earnings and stock-market performance are related, but they do not always move together. Share prices also depend on valuations, interest rates, global risk appetite, currency movements and the availability of more attractive investment opportunities elsewhere.
In her CNBC interview, Sitharaman said the Indian economy’s fundamentals were sound, while suggesting that the ease with which investors can enter and exit positions was contributing to market weakness.
Her remarks come after a period of substantial foreign selling. International investors can shift capital across countries and asset classes relatively quickly, particularly when they see better growth prospects, stronger earnings momentum or more attractive valuations in other markets.
This flexibility supports liquidity and market participation during favourable conditions, but it can also amplify selling pressure when global investors reduce exposure to a particular country.
The finance minister’s comments therefore focus on capital flows and market behaviour rather than suggesting that India’s economic fundamentals have deteriorated to the same extent as its stock-market performance.
What Does Excess Liquidity Mean for Equities?
Liquidity generally refers to how easily assets can be bought or sold without significantly affecting their prices. In financial markets, abundant liquidity can make it easier for investors to enter positions, trade frequently and sell holdings when their expectations change.
However, liquidity does not automatically make stock prices rise. Its effect depends on where capital is allocated, how investors assess risk and whether buyers are willing to absorb shares being sold.
For example, strong domestic investment can help support share prices when foreign investors sell. But if selling pressure is persistent or concentrated in large companies, domestic inflows may not be sufficient to prevent declines across the broader market.
The distinction between liquidity and demand is important. A market can have substantial trading activity and easy access to capital while still experiencing falling prices if sellers are more aggressive than buyers at prevailing valuations.
Sitharaman’s remarks suggest that the ease of withdrawing capital can contribute to market volatility. They do not establish that liquidity alone caused the decline in Indian equities. Global economic uncertainty, commodity prices, currency movements, earnings expectations and valuations can also influence investor decisions.
Foreign Investors Have Withdrawn More Than $33 Billion
Foreign portfolio investor selling has been one of the most visible pressures on Indian equities in 2026.
According to data cited by Sitharaman and reported by financial media, overseas investors have sold more than $33 billion in direct Indian equities so far this year. Separate reports on October 19 put the cumulative withdrawals at a higher level, reflecting continued selling during October. Figures can differ depending on the reporting date, the market instruments included and whether the calculation covers gross or net flows.
Foreign investors may reduce exposure to India for several reasons, including changes in global interest rates, a stronger US dollar, concerns about earnings growth, high valuations or the prospect of better returns in other markets.
When large investors sell shares, the market must find buyers willing to purchase those holdings. If demand is insufficient at current prices, share prices can fall until buyers consider the risk-reward balance more attractive.
Foreign selling can also influence investor sentiment. Domestic investors may become more cautious when overseas institutions reduce exposure, although their decisions depend on their own objectives and expectations.
Domestic mutual funds are providing support
Domestic investors have continued to participate in the market despite foreign selling. Indian equity mutual funds have recorded net inflows every month since March 2021, according to data from the Association of Mutual Funds in India cited in the reporting.
Regular mutual fund contributions can help create a relatively stable source of demand. Systematic investment plans, or SIPs, allow investors to contribute fixed amounts at regular intervals rather than investing all their money at once.
However, steady inflows do not guarantee that markets will rise. Mutual funds can purchase shares while prices continue to fall, and the impact of domestic investment depends on the scale of inflows relative to selling pressure.
The current situation illustrates how domestic capital has become an important counterweight to foreign portfolio flows without completely insulating Indian equities from global market movements.
AI Investment Is Drawing Capital Toward Taiwan and South Korea
Another factor highlighted by Sitharaman is the concentration of global investment in markets associated with artificial intelligence.
AI-related companies have attracted substantial attention because of demand for advanced chips, data centres, high-performance computing and related technology infrastructure. Taiwan and South Korea have significant exposure to parts of this supply chain, giving international investors a direct way to participate in the AI investment cycle.
India, by comparison, has a different market composition, with substantial representation from financial services, energy, consumer businesses, industrial companies and other sectors.
According to a Goldman Sachs report dated October 8 cited in recent coverage, Taiwan’s weighting in the MSCI Asia Pacific ex-Japan index had risen to 29%, while South Korea’s reached 22%. India’s weighting had fallen from approximately 19% a few years earlier to 10%.
| Market | Reported MSCI Asia Pacific ex-Japan weighting |
|---|---|
| Taiwan | 29% |
| South Korea | 22% |
| India | 10% |
These figures are reported index weightings cited in October 2026 coverage. They are not measures of each country’s share of all global investment.
The shift reflects differences in market composition and investor demand. Companies exposed to AI infrastructure may benefit from expectations of rapid technology spending, while markets with less direct exposure can receive a smaller share of incremental capital.
Sitharaman described the movement of capital toward the United States and AI-related investments as a concern for India.
The challenge for India is to attract investment by demonstrating competitive returns, credible earnings growth and opportunities across sectors. Economic growth alone may not guarantee that global investors will favour Indian equities if other markets offer stronger expected earnings momentum or more attractive valuations.
Could a Global AI Market Correction Affect India?
Sitharaman said India would not necessarily be hurt by spillover from a reversal in the global AI rally, noting that India had not attracted the same scale of AI-linked investment as some other markets.
That view rests on the possibility that markets with greater exposure to AI-related stocks could experience more direct pressure if expectations about AI spending or valuations weaken sharply.
However, the relationship is not straightforward. A global technology sell-off can affect investor confidence, currencies, financing conditions and risk appetite across many markets, including those with less direct exposure to AI companies.
India could therefore face indirect effects even if its listed companies are less concentrated in the most heavily valued AI segments. The scale of any impact would depend on the source of the correction, the behaviour of global investors and the condition of India’s own economy and corporate earnings.
The comments also highlight a distinction between short-term market volatility and longer-term economic opportunity. India is investing in semiconductor manufacturing and other technology capabilities, which could help expand its role in global technology supply chains over time.
Those investments will not automatically replicate Taiwan’s or South Korea’s market composition. Their eventual effect will depend on manufacturing capacity, supply-chain integration, technological competitiveness and the ability of domestic businesses to generate sustainable earnings.
India’s IPO Market and the Question of Investor Exits
Sitharaman also pointed to the ease with which multinational companies, private equity funds and foreign investors have been able to exit investments in India.
An initial public offering can provide an exit route for existing shareholders by allowing them to sell some or all of their holdings to public investors. This is a normal feature of capital markets: early investors often seek to realise returns after funding a company during its growth stage.
However, the balance between new capital raised by a company and shares sold by existing investors can differ significantly from one IPO to another.
An EY report published in August found that Indian IPOs collectively raised $60.4 billion between 2021 and 2025. Of that total, $37.7 billion, or approximately 63%, went to existing shareholders selling shares to the public.
| Indian IPO proceeds, 2021–2025 | Amount | Share of total |
|---|---|---|
| Total IPO proceeds | $60.4 billion | 100% |
| Proceeds received by existing shareholders | $37.7 billion | 63% |
| Remaining proceeds | $22.7 billion | 37% |
Source: EY report cited in October 2026 coverage. The remaining amount is calculated by subtracting existing-shareholder proceeds from total proceeds.
The figures do not mean that secondary share sales are inherently harmful. Such sales can improve liquidity, broaden ownership and provide investors with a way to realise returns. But they also raise questions about how much new money is entering companies to fund expansion compared with how much is going to existing owners.
For public-market investors, the use of IPO proceeds is an important part of evaluating an offering. A fresh issue generally provides funds to the company, while an offer for sale transfers money to selling shareholders.
The distinction can influence how investors assess a company’s growth plans, balance sheet and the motivations behind its listing.
What Investors Should Watch Next
The outlook for Indian equities will depend on several factors beyond liquidity alone.
Foreign portfolio flows remain important, particularly if global investors continue shifting funds toward AI-linked markets or other regions. A sustained reversal in outflows could ease one source of pressure, but market direction would also depend on corporate earnings, valuations, interest rates and economic developments.
Domestic mutual fund flows will be another important indicator. Continued investment can provide support, while any slowdown in contributions could reduce the market’s ability to absorb foreign selling.
Investors should also monitor the earnings performance of Indian companies. If profits grow strongly enough to support current valuations, equities may become more attractive even in the presence of foreign outflows. If earnings disappoint, falling prices may not immediately create a compelling opportunity.
Finally, the movement of capital across Asia will matter. India’s market weighting in regional indices reflects both relative market values and the performance of other constituents. Changes in Taiwan, South Korea and other markets can therefore affect India’s relative position even without a major change in its own fundamentals.
The Bigger Picture
Sitharaman’s remarks highlight the growing influence of global capital allocation on India’s stock market. Domestic economic growth and mutual fund inflows have provided support, but they have not prevented benchmark indices from declining as foreign investors sell and capital shifts toward AI-linked opportunities elsewhere. The market’s performance reflects a combination of investor behaviour, valuations, global conditions and company-level earnings expectations.
The discussion also raises a broader question about the role of India’s capital markets in financing long-term business growth. IPOs can provide companies with fresh capital and offer exits to existing investors, but the balance between the two matters. For India to attract a larger share of global investment, the key considerations will include sustained earnings growth, competitive valuations, deeper technology capabilities and confidence in the long-term returns available to investors.
Looking Ahead
The immediate market focus will remain on foreign portfolio flows, global interest rates, the strength of the US dollar and the performance of AI-linked equities. Continued selling could keep pressure on Indian shares, while changes in global risk appetite or more attractive valuations could influence investor positioning. Domestic mutual fund contributions will remain an important factor in determining how much of the selling pressure can be absorbed.
For 2027, the central challenge will be to attract and retain investment without relying solely on abundant liquidity to support stock prices. India will need to demonstrate that its listed companies can deliver competitive earnings growth and that its technology and manufacturing investments can create durable commercial opportunities. Sitharaman’s comments underline the importance of capital flows, but they do not establish that one factor alone explains the market’s underperformance.
Frequently Asked Questions
1. Why did Nirmala Sitharaman link easy exits and excess liquidity to market underperformance?
She argued that abundant liquidity and the ease of exiting investments can contribute to market weakness, particularly when foreign investors withdraw capital. Other factors, including valuations, earnings and global economic conditions, also influence stock prices.
2. How much have foreign investors sold in Indian equities in 2026?
Reports published on October 19 cited foreign portfolio investor selling of more than $33 billion so far in 2026. Separate figures for October and the year to date vary by reporting date and measurement.
3. Why are Taiwan and South Korea attracting AI-related investment?
Both markets have substantial exposure to companies involved in semiconductor manufacturing and the technology supply chain. Investors seeking exposure to AI-related spending have directed capital toward these businesses.
4. Are domestic mutual funds supporting Indian stocks?
Yes. Indian equity mutual funds have recorded monthly net inflows since March 2021, according to AMFI data cited in the reporting. However, domestic inflows do not guarantee that stock prices will rise.
5. What does it mean that 63% of Indian IPO proceeds went to existing shareholders?
It means that approximately $37.7 billion of the $60.4 billion raised through Indian IPOs between 2021 and 2025 went to shareholders selling existing shares. Such sales provide exit opportunities but do not directly raise new capital for the company.
6. Does Sitharaman expect Indian markets to fall further in 2027?
She identified continued capital outflows as a major risk for 2027. Her comments should not be interpreted as a specific forecast that the market will decline; future performance will depend on capital flows, earnings, valuations and broader economic conditions.
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