Excess liquidity, easy exits hurting India's equity market: Nirmala Sitharaman
What's the story
India's Finance Minister Nirmala Sitharaman has attributed the underperformance of the country's equity market to excess liquidity and easy exits. "Because of the ease of liquidity, ease of availability, people are even exiting easily" from equities, she said in an interview with CNBC. Despite this challenge, Sitharaman assured that the fundamentals of the Indian economy remain fine.
Market performance
Foreign investor exodus and its implications
Since January, India's key benchmark indexes have fallen nearly 12%, according to LSEG data.
This decline comes despite the country's economic growth remaining resilient amid trade uncertainty and geopolitical shocks.
The country has also witnessed record outflows from foreign investors in its equity markets.
Sitharaman highlighted that continued capital outflows are one of the biggest risks for India in 2027.
Market resilience
Domestic investors remain resilient
Despite the challenges posed by foreign investor outflows, domestic capital continues to flow into the Indian equity market.
Data from industry body Association of Mutual Funds in India shows that Indian equity mutual funds have seen net inflows every month since March 2021.
This indicates a strong domestic investor sentiment toward India's equity markets, even amid global uncertainties.
Investor behavior
IPO trend and its impact on the market
Between 2021 and 2025, Indian IPOs raised $60.4 billion, with $37.7 billion going to existing holders who sold their shares to the public.
This trend shows that multinational companies, private equity funds, and foreign investors have been able to make partial or full exits from their investments at a premium.
The trend has contributed to the current state of India's equity market.
Capital flight
Capital flight toward AI and US concerns
So far this year, foreign portfolio investors have sold direct Indian equities worth over $33 billion, according to data from Indian depository firm NSDL.
The trend of capital flight toward AI and the US is a concern for Sitharaman.
She noted that Taiwan and Korea, which are home to AI champions, have attracted strong investment flows while India's share in the MSCI Asia Pacific ex-Japan index has compressed from 19% a few years ago to 10%.
AI impact
India's position in frontier tech space
Sitharaman said that India wouldn't be "hurt" from any spillover if the global AI rally shows cracks.
She clarified that India has not received the "AI kind of investments coming into different jurisdictions."
Sitharaman also emphasized that India is no longer a laggard in the frontier tech space and is investing in semiconductor manufacturing.