India's Finance Minister Highlights Market Liquidity Benefits for Investors
Nirmala Sitharaman emphasizes the ease of exits for foreign investors amid high liquidity in India's equity market.
Foreign portfolio investors have found it easier to exit due to high liquidity.
Despite a nearly 12% drop in key indexes, domestic capital continues to flow into the market.
Sitharaman expresses concerns about capital flight towards AI investments abroad.
India's Finance Minister Nirmala Sitharaman stated that the high liquidity in the country's equity market has made it easier for foreign portfolio investors to exit their investments. Speaking to CNBC during the IMF-World Bank meetings in Bangkok, she noted that the availability of liquidity has facilitated smoother exits for investors. Despite this trend, she reassured that the fundamentals of the Indian economy remain strong.
Since the beginning of the year, India's major benchmark indexes have experienced a decline of nearly 12%, according to data from LSEG. This downturn has occurred despite the resilience of India's economic growth, which has been challenged by trade uncertainties and geopolitical tensions. Notably, foreign investors have withdrawn record amounts from Indian equity markets, yet domestic capital has consistently entered the market, with Indian equity mutual funds recording net inflows every month since March 2021.
Sitharaman highlighted that multinational companies and private equity funds have successfully executed partial or full exits from their investments at a premium. An EY report revealed that between 2021 and 2025, Indian initial public offerings raised a total of $60.4 billion, with approximately $37.7 billion, or 63%, benefiting existing shareholders who sold their shares to the public.
The finance minister expressed concern over the trend of capital flight towards artificial intelligence and the United States, which could impact investment in India. When asked about potential risks for the Indian economy in 2027, she pointed to fuel, fertilizer, and capital flow as significant factors. Although the global AI sector is showing signs of instability, she assured that India would not be adversely affected if the AI investment bubble were to burst.
Looking ahead, Sitharaman, who is the longest-serving finance minister in India, asserted that the country is no longer lagging in frontier technology. She mentioned ongoing investments in semiconductor manufacturing as a sign of India's growing capabilities. However, foreign portfolio investors have sold over $33 billion in direct Indian equities this year, as reported by NSDL, with some portfolio managers viewing India as an anti-AI trade compared to markets like Taiwan and Korea, which have seen stronger investment flows.
