Capital Outflows from India Raise Concerns
Finance Minister Nirmala Sitharaman pointed out major capital outflows from India as a serious issue. She noted that global investments are shifting towards the United States and AI-linked markets. At the IMF-World Bank meetings, she mentioned that foreign portfolio investors (FPIs) withdrew ₹52,100 crore from Indian equities in October 2026. This followed a net withdrawal of ₹35,861 crore in September. This trend has led to a nearly 12% drop in the benchmark BSE Sensex and Nifty 50 over the past year. This decline comes despite India's strong economic growth amid trade uncertainty and geopolitical challenges.
Sitharaman said, "The flight of capital toward AI and the US, which otherwise moves toward different countries for different sectoral investments, is a concern." She highlighted that India's share of the MSCI Asia Pacific ex-Japan index has decreased to 10% from 19% in recent years. Countries like Taiwan and South Korea have attracted large investments in AI infrastructure.
Market analyst Samir Arora noted that India's equity performance could improve. However, he warned that a selloff in AI stocks in the US would hurt India. He urged the government to think about removing taxes on FPI equity investments to draw in more capital. Arora's comments show concerns that India is not seen as an appealing destination for AI investments. This perception could worsen the capital flight.
Related coverage: Investors Turn to Chinese Stock Options Amid AI Trade Shift.
The ongoing capital outflows are likely to put pressure on Indian equities. This is especially true for the BSE Sensex and Nifty 50, as investors look for better returns in AI-linked markets abroad. The trend could affect sectors that rely on foreign investment, particularly technology and infrastructure.
Watch for upcoming government actions on FPI equity taxes. These measures may influence investor sentiment and capital flows.
Based on reporting by: livemint.com, moneycontrol.com