India's equity markets face mounting risks from capital outflows in 2027, according to Finance Minister Nirmala Sitharaman. Speaking to CNBC at the IMF-World Bank meetings in Bangkok, she cited excess liquidity as a key factor behind recent underperformance, saying the ease of availability meant investors could exit equities easily.
India's benchmark indexes have declined nearly 12% since January, LSEG data showed, despite resilient economic growth. Foreign portfolio investors have sold more than $33 billion in direct Indian equities so far this year, according to depository firm NSDL. Record outflows by foreign investors have mounted even as domestic capital continues to flow in, with Indian equity mutual funds recording net inflows every month since March 2021, the Association of Mutual Funds in India said.
Investment flows have shifted toward markets seen as artificial intelligence leaders. Taiwan now holds 29% of the MSCI Asia Pacific ex-Japan index weighting, while Korea holds 22%, a Goldman Sachs report from October 8 showed. India's share has compressed from 19% a few years ago to 10%. Sitharaman said capital moving toward AI and the US was a concern, though India has not received significant AI investments compared with other jurisdictions.
Between 2021 and 2025, Indian initial public offerings raised $60.4 billion collectively, with $37.7 billion, or 63% of total proceeds, going to existing shareholders selling shares to the public, an EY report in August showed. Sitharaman said India's economic fundamentals remain sound and that the country is making investments in semiconductor manufacturing to strengthen its position in frontier technology.
For savers and investors, continued foreign outflows could add pressure to Indian equity valuations, while domestic inflows and strong economic fundamentals may provide some support.