Sitharaman Says Easy Exit Routes Add to Market Weakness, Warns of Capital Outflows in 2027

Finance Minister Nirmala Sitharaman has attributed part of the recent weakness in Indian equities to the ease with which investors can withdraw their money, while maintaining that the country’s economic fundamentals remain sound. She has also flagged sustained capital outflows as a major risk for India in 2027, according to a CNBC report.

Speaking on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank, Sitharaman said easy access to liquidity was allowing investors to exit the market more readily.

Despite continued economic growth, domestic equity benchmarks have declined nearly 12 per cent so far this year amid global trade uncertainty and geopolitical tensions.

The Finance Minister identified the movement of global investment towards the United States and artificial intelligence-related opportunities as a key concern for India. While markets in Taiwan and South Korea have attracted investor interest because of their exposure to AI-linked companies, India has received comparatively less investment tied to the technology boom.

“The flight of capital toward AI and the US which otherwise moves toward different countries for different sectoral investments, is a concern,” Sitharaman told CNBC.

Foreign portfolio investors (FPIs) have sold more than $33 billion worth of Indian equities so far this year, according to data from depository NSDL, adding to the pressure on domestic markets.

However, the selling trend showed a temporary reversal on October 16, when foreign institutional investors (FIIs) turned net buyers after 15 consecutive sessions of selling, purchasing equities worth around Rs 1,166 crore. Domestic institutional investors (DIIs), meanwhile, ended their 45-session buying streak with net sales of approximately Rs 3,661 crore.

Sitharaman said India’s relatively limited exposure to the AI investment surge could also offer some protection if the global boom were to collapse and trigger a broader market sell-off.

She also emphasised that India was making progress in advanced technology and was no longer lagging behind in areas such as semiconductor manufacturing.

The Finance Minister’s remarks highlight the challenge facing Indian markets as global investors redirect funds towards AI-related businesses and US assets. While sustained foreign outflows could weigh on equities and investor sentiment, the government’s position is that India’s underlying economic strength remains intact.

The outlook for domestic markets will depend partly on the direction of global capital flows, the performance of AI-linked investments and investors’ assessment of India’s growth prospects in the coming years.

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