Easy exits hurting Indian stocks: Nirmala Sitharaman explains why equities are underperforming
Finance Minister Nirmala Sitharaman says easy liquidity is allowing investors to exit Indian equities as the Nifty and Sensex struggle to deliver positive returns. Foreign investors have pulled out nearly $63.6 billion since October 2024, erasing nine years of inflows, amid rising US yields, a stronger dollar and AI-driven investment shifts.
With domestic headline equity indices Nifty and Sensex failing to give positive returns in the last 2 years, Finance Minister Nirmala Sitharaman has argued that the liquidity paradox that supports trading is also allowing investors to exit quickly.“Because of the ease of liquidity, ease of availability, people are even exiting easily” from equities, Sitharaman told CNBC in an interview on the sidelines of the IMF-World Bank meetings in BangkokHer comments come as the Nifty and Sensex have failed to deliver positive returns over the past two years.
Since January, India’s benchmark indexes have fallen nearly 12% despite resilient economic growth amid trade uncertainty and geopolitical shocks.Sitharaman said India’s economic fundamentals were “fine”. But she identified persistent capital outflows as one of the key risks facing the country in 2027.Foreign investors have sold almost $63.6 billion since October 2024, wiping out the $63.5 billion they had invested over the previous nine years.
As a result, cumulative foreign equity flows from October 2015 are now broadly flat, at approximately minus $110 million, according to NSDL data.Live EventsThe selling has intensified this year. Foreign investors have withdrawn $32.8 billion from Indian equities in 2026, following $18.9 billion of outflows in 2025. March saw the largest monthly exit at $12.7 billion, followed by $6.5 billion in April and $5.2 billion in June.
Market watchers say India may struggle to attract substantial foreign capital in the near term amid high yields, India’s limited exposure to artificial intelligence and semiconductor themes, and currency depreciation.Domestic investors, meanwhile, have continued to provide a steady source of market liquidity. Indian equity mutual funds have recorded net inflows every month since March 2021, according to data from the Association of Mutual Funds in India.That domestic liquidity has also supported exits by existing shareholders.
Multinational companies, private equity funds and foreign investors have been able to sell part or all of their holdings through India’s public markets at a premium.India’s relative positioning has also become a concern for global investors. Foreign portfolio investors have sold more than $33 billion in direct Indian equities this year, according to NSDL, while Taiwan and South Korea have benefited from stronger investor interest in artificial intelligence companies.“The flight of capital toward AI and the U.S.,” is “a concern,” Sitharaman said.Taiwan now accounts for 29% of the MSCI Asia Pacific ex-Japan Index, while South Korea’s weight has risen to 22%, according to a Goldman Sachs report dated Oct. 8.
India’s share has declined from 19% a few years ago to 10%, the report said.Sitharaman said India would not be “hurt” by a spillover if the global AI bubble bursts, arguing that the country had not received the “AI kind of investments coming into different jurisdictions.”At the same time, she said India was “no longer a laggard” in frontier technology, with investments being made to establish semiconductor manufacturing.(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)(You can now subscribe to our ETMarkets WhatsApp channel)
