India Stock Market Slide: Finance Minister Warns of 2027 Risk

What Is Happening with India's Stock Market?

If you have been watching global financial markets lately, you might have noticed some real turbulence in India. The country's main stock market benchmark indexes have dropped by more than 12% in 2026.

To look at the exact numbers, the NSE Nifty 50 index has fallen by 12.13% since the beginning of the year. Meanwhile, the BSE SENSEX index has dropped by 12.78%.

Indian Finance Minister Nirmala Sitharaman spoke about these market shifts during the IMF-World Bank meetings in Bangkok. In an interview with CNBC, she pointed out that high market liquidity actually makes it very easy for international investors to exit their positions quickly.

Why Foreign Money Is Leaving Indian Equities

One of the top risks flagged by Minister Sitharaman for 2027 is the continuous exit of foreign money. Data from the National Securities Depository Limited (NSDL) shows that foreign portfolio investors have sold over $33 billion worth of Indian equities so far this year.

While August saw a brief break with $2.4 billion in foreign inflows, heavy selling started right back up in September. HSBC Mutual Fund reported that foreign institutional investors pulled out $4.1 billion in September alone.

Minister Sitharaman reassured that India's underlying economic fundamentals stay strong. However, high market liquidity simply makes capital flight easier whenever global funds decide to reallocate their cash elsewhere.

The Global AI Craze and Shifting Asian Benchmarks

So where is all that foreign money heading? A big chunk of international capital is currently moving toward Artificial Intelligence (AI) powerhouses in the United States, Taiwan, and South Korea.

Taiwan and South Korea host major technology and chip-making leaders. Because of this, global investment bank Goldman Sachs adjusted India's weight in the MSCI Asia Pacific ex-Japan index down to 10%, compared to 19% a few years back. Meanwhile, Taiwan holds a 29% weight and South Korea holds 22%.

Minister Sitharaman recognized that capital flowing toward AI hub countries is a reality. But she also noted a potential positive side: because India did not draw speculative AI boom money, the country will not be hit if an AI market bubble happens to pop.

Domestic Investors Step Up to Buy

While foreign funds have been selling, domestic Indian investors have been doing the exact opposite. Local institutional investors stepped in and bought $8.1 billion in equities during September alone.

In fact, domestic equity mutual funds in India have recorded positive net inflows every single month since March 2021. This strong local demand has provided steady support against heavy foreign selling.

This healthy domestic demand also gave existing owners a chance to cash out. Data from EY shows that Indian Initial Public Offerings (IPOs) raised $60.4 billion between 2021 and 2025, with selling shareholders taking $37.7 billion—or 63%—of those funds. Additionally, India set a record in August 2026 by pricing nearly $10 billion in equity deals.

Pressure on the Rupee and Central Bank Intervention

These capital outflows, combined with higher global oil prices and rising US Treasury yields, have put noticeable strain on the Indian rupee.

To keep the currency stable, the Reserve Bank of India (RBI) has actively stepped in. Reports from Reuters indicate that economists estimate the RBI used between $75 billion and $80 billion in spot dollar sales and swaps since June 8.

That means the central bank has used around half of its $140 billion-plus war chest. Total reserves dropped to $734.6 billion by October 2, which is roughly $51 billion below their early September peak.

Financial brokerage firm Ambit noted that this drop in usable reserves is getting noticeable. They cautioned that if reserves continue falling, it could raise questions about the central bank's ability to protect the rupee over the long term. Ambit also mentioned that the RBI has repeatedly stepped in whenever the rupee neared 97 per US dollar over the last six months.

What Lies Ahead for the Market?

Looking forward, market experts believe corporate earnings will be the main driver for near-term returns.

HSBC Mutual Fund highlighted that the Nifty 50 index recently traded at about 17 times one-year forward earnings. This valuation is around 13% below its five-year average, suggesting prices have cooled down relative to historical levels.

Keeping an eye on global money shifts, currency buffers, and corporate earnings can help investors navigate these shifting market cycles. As always, past performance of financial markets or equity indexes does not guarantee future results.