India’s Finance Minister Discusses Equity Market Challenges Amid Excess Liquidity
- Finance Minister Nirmala Sitharaman highlights excess liquidity as a factor for India’s equity underperformance.
- Indian key benchmark indexes have declined nearly 12% since January 2026 amid significant foreign capital outflows.
- Despite challenges, domestic investment remains strong, with Indian mutual funds showing consistent net inflows since March 2021.
Nirmala Sitharaman, India’s finance minister, addressed issues surrounding excess liquidity in the country’s equity market during the IMF and World Bank annual meetings in Bangkok, Thailand, on October 15, 2026. In an exclusive interview with CNBC, she stated that the ease of liquidity has allowed investors to exit equity positions more readily, although she affirmed that the fundamentals of the Indian economy are “fine.”
According to data from LSEG, India’s key benchmark indexes have decreased by nearly 12% since January 2026. This downturn has occurred despite the country’s resilient economic growth amid ongoing trade uncertainties and geopolitical challenges. Sitharaman pointed out that record outflows from foreign investors pose significant risks for the Indian market in 2027.
In contrast to the foreign capital outflow, domestic investment continues to surge. Data from the Association of Mutual Funds in India indicates that Indian equity mutual funds have seen net inflows each month since March 2021.
Foreign portfolio investors have divested over $33 billion from direct Indian equities this year according to NSDL, contributing to India’s reputation as an anti-artificial intelligence trade area. Markets such as Taiwan and Korea, noted for their AI advancements, are attracting greater investment flows. Sitharaman expressed concern over the shift of capital toward AI and the United States, as it represents a diversion of funds that typically flow to various countries for sectoral investments.
As of October 8, Taiwan accounted for 29% of the market weighting in the MSCI Asia Pacific ex-Japan index, followed by Korea at 22%. India’s share has diminished from 19% to 10% in recent years, as reported by Goldman Sachs.
Despite potential vulnerabilities linked to the global AI sector, Sitharaman asserted that India would not be adversely affected if the AI market experienced a downturn, noting the country’s lack of substantial “AI kind of investments” in various jurisdictions. She emphasized that India is progressing in the frontier tech sector, with ongoing investments aimed at developing semiconductor manufacturing capabilities.
News Courtesy of CNBC
