Indian finance minister tackles capital outflows in stock markets

The high degree of liquidity in the Indian stock market has facilitated the exit of foreign portfolio investors, according to Finance Minister Nirmala Sitharaman.

“Because of the ease of liquidity and availability, people are even exiting easily,” Sitharaman told CNBC in an exclusive interview on the sidelines of the IMF and World Bank meetings in Bangkok on Friday. However, the fundamentals of the Indian economy are “good”, she said.

Since January, India’s major benchmarks have fallen nearly 12%, according to LSEG data, even as the country’s economic growth has weathered trade uncertainty and geopolitical shocks. India has been hit by record outflows of foreign investors from its stock markets.

Yet domestic capital continues to flood the market. Indian equity mutual funds have recorded net inflows every month since March 2021, according to data released by industry body Association of Mutual Funds in India earlier this month.

Multinational companies, private equity funds and foreign investors were able to partially or completely exit their investments for a premium. Between 2021 and 2025, Indian IPOs collectively raised $60.4 billion, of which “a staggering” $37.7 billion, or 63% of the total proceeds, went to existing holders who sold their shares to the public, according to an EY report released in August.

Capital flight to AI and the US, which otherwise goes to different countries for different sectoral investments, is “a concern”, Sitharaman said. Asked about the biggest risks for the Indian economy in 2027, the finance minister highlighted fuel, fertilizers and “capital flows”.

The global AI rally shows cracks, but Sitharaman said India would not be “hurt” by any spillover if the bubble bursts. India has not received “AI-type investments in different jurisdictions”, she said.

Sitharaman, who is India’s longest-serving finance minister to continuously hold the position, added that the South Asian country was “no longer lagging behind” in advanced technology and investments were underway to set up semiconductor manufacturing.

Foreign portfolio investors have directly sold Indian stocks worth more than $33 billion so far this year, according to Indian depository firm NSDL. India is seen by some portfolio managers as an anti-AI country, while markets like Taiwan and Korea, with AI champions, have attracted significant investment flows.

Taiwan now has the largest market weighting in the MSCI Asia-Pacific index excluding Japan, at 29%, while Korea has moved to second place with 22%, according to an October 8 Goldman Sachs report. India’s share has shrunk from 19% a few years ago to 10%, he adds.

-Correction: This article has been updated to clarify that Sitharaman was discussing the ease of exit from the Indian stock market, rather than attributing the stock market’s underperformance to excess liquidity.