Finance Minister Nirmala Sitharaman has flagged sustained foreign capital outflows and high market liquidity as key concerns for Indian equities, which have declined nearly 12 per cent since the beginning of 2026. Despite persistent selling by foreign investors, domestic mutual fund inflows and record systematic investment plan (SIP) contributions have provided support to the markets.
Speaking on the sidelines of the International Monetary Fund (IMF) and World Bank meetings in Bangkok on Friday, Sitharaman said abundant liquidity was allowing investors to exit their positions easily. She also maintained that India's economic fundamentals remained sound, even as benchmark equity indices struggled to deliver returns over the past two years.
Foreign investors withdraw over $33 billion
Foreign portfolio investors (FPIs) have sold Indian equities worth more than $33 billion in 2026, according to data from the National Securities Depository Limited (NSDL). Sitharaman identified continued capital outflows as a major risk for the Indian economy and financial markets in 2027.
She also pointed to a shift in global investment flows towards artificial intelligence (AI)-related opportunities in the United States, Taiwan and South Korea. This trend has diverted foreign capital away from Indian equities, which have relatively limited exposure to the gains generated by the global AI rally.
However, Sitharaman noted that India's lower exposure to AI-driven market valuations could offer some protection if the global technology rally reverses. She also highlighted the country's efforts to strengthen domestic semiconductor manufacturing capabilities.
Foreign investors return to buying after 15 sessions
Foreign investors turned net buyers of Indian equities on October 16 after 15 consecutive sessions of selling, purchasing shares worth approximately ₹1,166 crore.
Domestic institutional investors (DIIs), meanwhile, sold shares worth nearly ₹3,661 crore, ending their 45-session buying streak. The development highlighted the changing pattern of institutional flows in the domestic market.
Despite the brief return of foreign buying, sustained overseas outflows remain a concern for investors as global economic uncertainty and shifting investment preferences continue to influence market sentiment.
Mutual funds and SIP investments support markets
Domestic investments have helped cushion Indian equities against continued foreign selling. According to the Association of Mutual Funds in India (AMFI), equity mutual funds attracted ₹38,307 crore in September, marking their highest monthly inflow in five months.
The inflows increased 31 per cent from August, extending the industry's positive monthly streak to 67 months. Mid-cap funds attracted ₹7,845 crore, while small-cap schemes received ₹9,039 crore.
Systematic investment plan contributions also reached a record ₹32,490 crore during September, providing an important source of domestic liquidity and helping offset foreign portfolio outflows of $3.75 billion during the month.
Sitharaman calls for stronger urban financing
Separately, the Finance Minister called for stronger municipal finances, public investment, development finance and private capital to support the development of financially sustainable cities.
She said combining these funding sources would help urban centres attract long-term investments, strengthen infrastructure and improve their financial resilience.
As Indian equity markets navigate foreign capital outflows and changing global investment trends, investors are likely to continue monitoring institutional flows, domestic investment trends and developments in global technology markets.
