India's Finance Minister Nirmala Sitharaman said excess liquidity has contributed to equity market underperformance and may continue to do so. Sitharaman said readily available liquidity allows investors to exit equities easily. Sitharaman spoke on Friday on the sidelines of the IMF-World Bank meetings in Bangkok. However, Sitharaman said the fundamentals of India's economy are fine.
LSEG data show India's key benchmark indexes have fallen nearly 12% since January, despite resilient economic growth amid trade uncertainty and geopolitical shocks. India has experienced record foreign investor outflows from equity markets. Sitharaman said continued capital outflows are one of India's biggest risks in 2027. However, domestic capital continues to enter the market. Association of Mutual Funds in India data released earlier this month show Indian equity mutual funds have recorded net inflows every month since March 2021.
Multinational companies, private equity funds and foreign investors have been able to exit investments partially or fully at a premium. An EY report published in August said Indian initial public offerings collectively raised $60.4 billion between 2021 and 2025. The EY report said $37.7 billion, or 63% of total proceeds, went to existing shareholders who sold shares to the public.
Indian depository firm NSDL data show foreign portfolio investors have sold over $33 billion of direct Indian equities so far this year. India has gained a reputation as a market for investors seeking alternatives to artificial intelligence investments. Markets such as Taiwan and Korea, which have leading AI companies, have attracted strong investment flows. Sitharaman said capital moving toward AI and the United States, rather than different countries for different sectoral investments, is a concern. Goldman Sachs reported on Oct. 8 that Taiwan now has the largest weighting in the MSCI Asia Pacific ex-Japan index, at 29%. Goldman Sachs said Korea has moved into second place, at 22%. Goldman Sachs said India's share has fallen from 19% a few years ago to 10%.
The global AI rally is showing signs of weakness. However, Sitharaman said India would not be hurt by spillover if the global AI bubble burst. Sitharaman said India has not received the kinds of AI investments entering other jurisdictions. Sitharaman said India is no longer behind in frontier technology and investment is being made to establish semiconductor manufacturing. Sitharaman is India's longest-serving finance minister to hold the office continuously.
India's Finance Minister Attributes Equity Market Decline to Excess Liquidity and Easy Exits
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Summary
India's Finance Minister Nirmala Sitharaman linked the equity market's poor performance to excess liquidity and easy exits. Since January, major indexes have dropped nearly 12% amid record foreign outflows. She warned liquidity remains a key risk through 2027, though domestic investors are still buying equity mutual funds. India is not chasing global AI trends but is pushing semiconductor manufacturing. Altcoins to watch may gain traction as liquidity shifts.
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