India Finance Minister Pins Equity Slump on Excess Liquidity as Foreign Investors Pull Record Outflows

Indian Finance Minister Nirmala Sitharaman attributed her country's equity market underperformance to excess liquidity enabling easy investor exits, speaking in an exclusive CNBC interview on the sidelines of the IMF-World Bank annual meetings in Bangkok. She maintained that the fundamentals of the Indian economy remain sound, but said that the ease of liquidity availability is making it simpler for investors to exit equities as conditions shift globally.

Foreign portfolio investors have withdrawn over 3.1 lakh crore rupees from Indian markets in 2026 so far, a record pace driven by rising crude oil prices, higher US Treasury yields, a stronger dollar, and a shift in capital toward AI-linked technology markets in Taiwan and South Korea. India's benchmark equity indexes have fallen roughly 12% since January, according to LSEG data. Sitharaman identified capital outflows as one of the biggest risks facing India heading into 2027.

Sitharaman pointed to two potential buffers against further deterioration: steady inflows into domestic mutual funds that have continued since March 2021, and India's relatively limited exposure to AI-sector investments, which she said would insulate the country if a global AI bubble were to burst. Public debate inside India remains divided on whether excess liquidity or other structural factors, including tax policy, are the primary drivers of the selloff.

Adding to the global market stress, Japan's Nikkei tumbled Monday as a selloff in US technology stocks and rising oil prices heightened fears about persistent inflation and the prospect of higher interest rates. Separately, the US Federal Reserve is set to inject approximately 14.61 billion dollars into markets across three consecutive weeks starting this week, a move analysts expect to provide a near-term tailwind for risk assets including cryptocurrencies.