India’s Finance Minister says easy exits and excess liquidity fuel equity market's underperformance

Excess liquidity means abundant investable money is flowing through the equity market. Easy exits mean investors can quickly sell their shares and withdraw money. Finance Minister Nirmala Sitharaman linked both conditions to India’s market underperformance.

When buying money is plentiful, companies and existing shareholders may find it easier to sell shares. However, investors also face fewer barriers to selling. That can increase short-term trading and make capital leave quickly when concerns arise. Indian IPOs raised $60.4 billion between 2021 and 2025, with existing holders receiving $37.7 billion.

The article presents this as a continuing risk, not proof that liquidity alone determines prices. Domestic mutual funds keep recording monthly inflows, while foreign investors have sold heavily. Sitharaman said India’s economic fundamentals remain fine, but continued capital outflows could remain one of the country’s biggest risks in 2027.

India’s key benchmark indexes have slipped nearly 12% since January, according to LSEG data. The decline has occurred despite resilient economic growth and continued uncertainty from trade tensions and geopolitical shocks. The market’s fall highlights the gap between economic performance and investor flows.

Foreign portfolio investors have sold more than $33 billion in direct Indian equities so far this year, according to Indian depository firm NSDL. The selling represents a major withdrawal of international capital from Indian stocks. Sitharaman identified continued capital outflows as one of India’s biggest risks for 2027.

Domestic money is moving in the opposite direction. Indian equity mutual funds have recorded net inflows every month since March 2021. Those inflows have helped keep capital entering the market even as foreign investors sell, but they have not prevented benchmark indexes from falling nearly 12% since January.

Abundant liquidity can make markets more responsive to changing expectations. Investors can enter easily when conditions look attractive, but they can also sell quickly when they prefer another market or sector. That speed can amplify outflows and weaken share prices, even when the economy’s underlying fundamentals remain sound.

India offers a clear example. Foreign portfolio investors sold over $33 billion in direct Indian equities this year. At the same time, India’s key benchmark indexes slipped nearly 12% since January. The market also enabled multinational companies, private equity funds and foreign investors to make partial or full exits at a premium.

Domestic mutual funds continued receiving money, but foreign withdrawals still created pressure. Sitharaman said capital moving toward artificial-intelligence markets and the United States was a concern. She also named continued outflows as one of India’s biggest risks for 2027.

The clearest sellers are foreign portfolio investors, which have sold over $33 billion in direct Indian equities this year. The article also says multinational companies, private equity funds and foreign investors have made partial or full exits at a premium. Their selling reflects capital moving elsewhere, including toward AI-linked markets and the United States.

Domestic equity mutual funds are moving differently. They have recorded net inflows every month since March 2021, according to the Association of Mutual Funds in India. These inflows mean Indian household or domestic investment channels continue supplying capital while foreign investors withdraw it.

The article does not state why domestic mutual funds keep receiving money. It only establishes the continuing inflow pattern. Therefore, the strongest conclusion is that domestic participation is cushioning foreign selling, not that it has eliminated market pressure or reversed the benchmark decline.

The 63% figure matters because it shows that Indian IPOs were used largely by existing holders to sell shares to the public. Between 2021 and 2025, IPOs collectively raised $60.4 billion, but $37.7 billion went to shareholders who were exiting or reducing their stakes. The market therefore supported substantial investor liquidity.

This is the key mechanism: an IPO can bring a company to public investors while also giving earlier owners a chance to sell. Multinational companies, private equity funds and foreign investors were able to make partial or full exits at a premium. Existing holders captured most of the proceeds in this period.

The figure supports Sitharaman’s broader concern about easy exits. It does not prove that IPOs caused India’s benchmark decline, or that every exit was negative. It shows instead that public markets provided a powerful channel for existing investors to realize value and move capital elsewhere.

Global investors directed money toward markets associated with artificial intelligence. Taiwan and South Korea benefited because they have AI champions, while India gained a reputation as an anti-AI trade. This made India less attractive during a rally centered on AI companies and technology supply chains.

The market-weighting figures show the shift. Taiwan held 29% of the MSCI Asia Pacific ex-Japan index, and Korea held 22%, according to Goldman Sachs. India’s weighting had compressed from 19% a few years earlier to 10%. These weights reflect how investors were allocating regional market exposure.

Sitharaman called the flight of capital toward AI and the United States a concern. However, she said India would not be hurt by a spillover if the AI bubble burst, because it had not received the same AI-driven investments. She added that India is no longer a laggard in frontier technology and is investing in semiconductor manufacturing.

An equity market is a system where ownership claims in companies are bought and sold. Those claims are represented by shares or stocks. Companies can use the market to raise capital, while investors acquire a potential stake in the company and can later sell it. The article’s discussion of IPOs and existing holders illustrates this structure.

In an IPO, a company’s shares become available to public investors for the first time. Existing shareholders may also sell some of their holdings. Between 2021 and 2025, Indian IPOs raised $60.4 billion, and existing holders received $37.7 billion, or 63% of the proceeds. This shows both capital raising and ownership transfer.

After shares are issued, investors can trade them with one another in the secondary market. Easy liquidity makes those trades and exits more convenient. This general market definition is broader than the article’s explanation, but it clarifies why companies, investors and existing shareholders all appear in the story.