In 2026, the rise of AI-driven investments has propelled companies like TSMC, Samsung, and SK Hynix to valuations exceeding a trillion dollars, while India's market struggles without a large-scale AI presence.
Experts indicate that India's domestic consumption story is faltering due to higher inflation, a depreciating rupee, and a slowdown in job creation, which is expected to negatively impact corporate earnings for the financial year ending March 2027. Foreign investors have sold $27.6 billion in Indian equities since January, a stark contrast to the $18.9 billion sold in 2025.
As a result, Taiwan's market capitalization has surged to nearly $5 trillion, overtaking India as the world's fifth-largest equity market, with South Korea also surpassing India for sixth place. Bernstein analysts noted that India's equity market cap was previously 3.5 times that of South Korea and more than double that of Taiwan just 18 months ago.
The shift in investor sentiment is evident, with Indian benchmark indices down over 10% year-to-date, while South Korea's Kospi 200 and Taiwan's FTSE TWSE 50 have gained over 130% and 60%, respectively.
Analysts suggest that India's high valuations and moderate earnings growth are contributing to the decline in investor interest, despite the lack of an AI sector not being the sole reason for the exodus. The MSCI index reflects this trend, with India's weightage dropping from nearly 20% in 2024 to around 11%.
Long-term concerns about India's competitive advantages in low-cost labor and the impact of automation and AI on the IT sector further dampen investor confidence, even if geopolitical tensions ease