India's deep pool of domestic liquidity is proving to be a double-edged sword for its stock market. While local investors continue to pour money into equities, the same liquidity is allowing foreign portfolio investors to exit their positions more easily, Finance Minister Nirmala Sitharaman told CNBC. "Because of the ease of liquidity, ease of availability, people are even exiting easily," Sitharaman said in the interview.
India's benchmark indices have fallen nearly 12% since January, despite resilient economic growth amid trade uncertainty and geopolitical shocks. Foreign investors have withdrawn record amounts from Indian equities, while domestic capital has continued to provide support. Data from the Association of Mutual Funds in India, showed that Indian equity mutual funds have recorded net inflows every month since March 2021.
Additionally, an EY report published in August found that Indian IPOs raised $60.4 billion between 2021 and 2025. Of this, $37.7 billion, or around 63% of total proceeds, went to existing shareholders selling their holdings. Despite the market weakness, Sitharaman told CNBC that the fundamentals of the Indian economy remained "fine".
Fuel, Fertilisers And Capital Flows Are Key Risks
When asked about risks for India's economy in 2027, Sitharaman identified fuel, fertilisers and the flow of capital as key concerns.
She told CNBC that capital moving towards artificial intelligence and the US, instead of being distributed across countries and sectors, was a concern. Foreign portfolio investors have sold more than $33 billion worth of direct Indian equities so far in 2026, according to NSDL data.
Sitharaman also said India would not be "hurt" by spillovers if the global AI rally turned into a bubble and burst, noting that India had not attracted the same scale of AI-related investments as some other markets. She added that India was "no longer a laggard" in frontier technology and was investing in semiconductor manufacturing.
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