Nirmala Sitharaman Highlights Capital Outflows Impacting Indian Stocks
Finance Minister Nirmala Sitharaman addresses the challenges facing Indian equities amid significant foreign capital exits.
Indian benchmark indexes have dropped nearly 12% since January 2023.
Foreign investors have withdrawn approximately $63.6 billion since October 2024.
Domestic investors continue to support market liquidity despite foreign sell-offs.
During an interview at the IMF-World Bank meetings in Bangkok, Finance Minister Nirmala Sitharaman discussed the troubling trend of capital outflows affecting Indian stock markets. She noted that the ease of liquidity has led to increased exits from equities, contributing to the underperformance of major indices like the Nifty and Sensex, which have not yielded positive returns over the past two years.
Sitharaman emphasized that while India's economic fundamentals remain strong, persistent capital outflows pose a significant risk to the market's stability. Since October 2024, foreign investors have sold off nearly $63.6 billion, effectively negating the $63.5 billion they had invested over the previous nine years. This trend has left cumulative foreign equity flows nearly flat, with a slight deficit of approximately $110 million since October 2015.
The current year has seen a dramatic increase in selling, with foreign investors withdrawing $32.8 billion from Indian equities in 2026 alone, following $18.9 billion in outflows in 2025. The largest monthly exit occurred in March, totaling $12.7 billion, with subsequent withdrawals of $6.5 billion in April and $5.2 billion in June. Analysts attribute this trend to a combination of rising US Treasury yields, a strengthening dollar, high oil prices, and concerns regarding India's investment returns relative to other markets.
Despite these challenges, domestic investors have played a crucial role in maintaining market liquidity. Indian equity mutual funds have seen consistent net inflows since March 2021, indicating a robust domestic investment environment. This influx has enabled multinational corporations and private equity funds to divest their holdings at favorable prices, even amid foreign sell-offs. However, concerns persist regarding India's attractiveness to global investors, particularly as countries like Taiwan and South Korea gain traction in sectors such as artificial intelligence.
Looking ahead, Sitharaman expressed confidence that India would not be adversely affected by potential downturns in the global AI market, asserting that the country has not yet attracted significant AI-related investments. She also highlighted ongoing efforts to enhance India's position in frontier technologies, including semiconductor manufacturing, as a means to bolster economic resilience and attract future investments.
