Sitharaman Attributes Equity Underperformance to Liquidity Dynamics
BANGKOK – Indian Finance Minister Nirmala Sitharaman has pointed to excess liquidity as a primary catalyst for the recent tepid performance of the nation’s equity markets. Speaking on the sidelines of the IMF-World Bank annual meetings in Bangkok, the Finance Minister suggested that the ease with which investors can access and exit market positions has contributed to volatility, even as the country’s macroeconomic fundamentals remain robust.
While India’s economic growth has shown significant resilience in the face of global trade tensions and geopolitical instability, the benchmark indices have faced a challenging year. According to LSEG data, key Indian indices have declined by nearly 12% since January. This downturn has been punctuated by record-breaking capital outflows from foreign portfolio investors, a trend that the Finance Minister identified as a critical risk factor heading into 2027.
The Paradox of Capital Flows
The market landscape in India is currently defined by a stark contrast between international and domestic sentiment. While foreign investors have liquidated over $33 billion in Indian equities this year, domestic participation remains at an all-time high. Data from the Association of Mutual Funds in India confirms that domestic equity mutual funds have maintained a streak of net inflows every month since March 2021.
This domestic appetite has provided a unique exit opportunity for institutional players. A recent EY report highlighted that between 2021 and 2025, initial public offerings in India raised over $60 billion. Notably, roughly 63% of these proceeds—amounting to $37.7 billion—flowed directly to existing stakeholders, including multinational corporations and private equity firms, rather than being reinvested into company growth.
Navigating the AI-Driven Market Shift
A major component of India’s recent capital flight is its perceived status as an “anti-AI” market. As global investment capital has surged toward jurisdictions hosting major artificial intelligence players—most notably Taiwan and South Korea—India’s weighting in the MSCI Asia Pacific ex-Japan index has been halved, falling from 19% to 10% over the last few years.
Sitharaman acknowledged that the migration of global capital toward AI-centric markets is a legitimate concern. However, she emphasized that India remains insulated from the potential fallout of a correction in the AI sector. Because India did not attract the same speculative, high-valuation inflows that fueled the tech-heavy rallies in other regions, the Finance Minister believes the nation is shielded from the consequences should a global AI bubble burst.
“We are no longer a laggard,” Sitharaman asserted, highlighting India’s strategic pivot toward frontier technologies. She pointed to ongoing initiatives to establish a domestic semiconductor manufacturing ecosystem as evidence that the country is aggressively fostering high-tech growth.
Ultimately, while the current market climate presents challenges, the Finance Minister maintained a confident stance on the Indian economy’s underlying health. By decoupling its growth narrative from the hyper-volatile AI trades dominating global headlines, India seeks to position itself as a stable, long-term destination for more sustainable capital investment.
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