In an exclusive interview, Finance Minister Nirmala Sitharaman discussed the challenges facing India's equity market, attributing its underperformance to excess liquidity that allows investors to exit their positions easily.
Despite the Indian economy showing resilience amid global uncertainties, the equity market has suffered from record foreign investor outflows, totaling over $33 billion this year. Sitharaman identified continued capital outflows as a significant risk for India moving into 2027.
However, domestic capital remains robust, with Indian equity mutual funds experiencing consistent net inflows since March 2021. The minister noted that while multinational companies and private equity funds have exited their investments at a premium, the overall market sentiment is affected by the flight of capital towards AI-focused markets like Taiwan and Korea.
India's representation in the MSCI Asia Pacific ex-Japan index has decreased from 19% to 10%, raising concerns about its competitiveness in attracting investments.
Nonetheless, Sitharaman expressed confidence that India would not be adversely affected by potential downturns in the AI sector, emphasizing ongoing investments in semiconductor manufacturing as a sign of the country's commitment to advancing in frontier technologies