Indian Finance Minister Nirmala Sitharaman has flagged one of the biggest risks facing India in 2027. Her comments came as the country’s benchmark stock indexes slid more than 12% this year.
The NSE Nifty 50 has fallen 12.13% since the start of 2026, while the BSE SENSEX has dropped 12.78%. Sitharaman tied part of that weakness to excess liquidity in the market.
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Foreign Money Walks Out as Local Funds Keep Buying
Sitharaman spoke to CNBC on the sidelines of the IMF-World Bank meetings in Bangkok. She named continued capital outflows as one of India’s biggest risks for 2027.
Foreign portfolio investors have already sold over $33 billion of Indian equities this year, according to NSDL. Selling resumed in September after a brief pause.
Foreign institutional investors withdrew $4.1 billion that month, reversing $2.4 billion of August inflows, HSBC Mutual Fund said. India’s economic fundamentals remain fine, Sitharaman added.
“Because of the ease of liquidity, ease of availability, people are even exiting easily,” Sitharaman stated.
Nonetheless, local institutions moved the other way. They bought $8.1 billion of equities in the same month. Equity mutual funds have also logged net inflows every month since March 2021.
That steady demand may have given existing holders an exit. Indian IPOs raised $60.4 billion from 2021 to 2025, per EY. Selling shareholders took $37.7 billion, or 63%, of that. India also priced a record of nearly $10 billion in equity deals in August.
India’s standing in regional benchmarks has slipped too. Goldman Sachs put India’s MSCI Asia Pacific ex-Japan weight at 10%, down from 19% a few years ago. Taiwan and Korea, home to AI champions, hold 29% and 22%.
Sitharaman called the flight of capital toward AI and the US a concern. However, she said India would not be hurt if the AI bubble bursts, as it never drew such investment.
The Rupee Feels the Strain as the RBI Spends Its Buffer
The outflows are also hitting the rupee, along with high oil prices and rising US Treasury yields. That pressure has pushed the Reserve Bank of India (RBI) to step up intervention.
Reuters reported that the RBI has used about half of the $140 billion-plus it mobilized. Three economists put spot dollar sales and swaps since June 8 at $75 billion to $80 billion.
Reserves fell to $734.6 billion through October 2, about $51 billion below their early-September peak. Brokerage Ambit flagged the drop in a note.
“The sharp fall in usable reserves, after adjusting for forward shorts and gold, has reached noticeable levels. A continued fall could raise doubts about the RBI’s ability to defend the rupee and fuel more speculation.”
Ambit added that the RBI has stepped in whenever the rupee neared 97 per dollar over the past six months.
HSBC Mutual Fund expects corporate earnings to drive near-term returns. It noted the Nifty 50 was trading at 17 times one-year forward earnings, about 13% below its five-year average.
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