New Delhi: India’s stock market has lost considerable ground in global rankings, sliding to seventh place by market capitalisation after being overtaken by Taiwan and South Korea, two markets benefiting from the artificial intelligence investment wave on the back of chip giants TSMC, Samsung Electronics and SK Hynix. The shift has rattled Dalal Street and triggered a debate over whether India’s lack of major AI-focused companies is the primary reason behind the decline, Reuters reported.
Foreign investors have pulled nearly $26.4 billion from Indian equities so far in 2026, putting the country on course to far exceed the record $18.9 billion outflow seen in 2025. India’s share in the MSCI Global Standard index has shrunk to 12.3% from a peak of 21% in September 2024. Both Taiwan and South Korea received Goldman Sachs ratings upgrades last week.
AI is a factor, but not the only one
While India’s absence from the AI supply chain has clearly disadvantaged it relative to East Asian markets, some analysts argue there are several factors at play. According to Reuters, Abhay Laijawala, Managing Director and India Chief Investment Officer at Lighthouse Canton, believes India offers a “picks-and-shovels” opportunity in the AI era through investments in electricity, cooling systems, physical infrastructure and data centres that support the broader AI ecosystem. He also noted that India’s stock market is more diversified and less dependent on any single sector.
Weak earnings, energy shock and the rupee
Beyond AI, weak corporate earnings growth and the severe economic impact of the Iran war energy shock have compounded foreign outflows. With the RBI holding rates steady rather than cutting, markets need earnings momentum to justify current valuations, analysts said. A stabilising rupee, beaten to historic lows as surging crude prices worsened India’s terms of trade, would go a long way toward restoring investor confidence. RBI Governor Sanjay Malhotra said he expects healthy inflows from new measures including scrapping capital gains tax for foreign holders of government bonds and sweetening NRI dollar deposit schemes, adding that capital outflow curbs were not under discussion.
AI is a factor, but not the only one
While India’s absence from the AI supply chain has clearly disadvantaged it relative to East Asian markets, some analysts argue there are several factors at play. According to Reuters, Abhay Laijawala, Managing Director and India Chief Investment Officer at Lighthouse Canton, believes India offers a “picks-and-shovels” opportunity in the AI era through investments in electricity, cooling systems, physical infrastructure and data centres that support the broader AI ecosystem. He also noted that India’s stock market is more diversified and less dependent on any single sector.
Weak earnings, energy shock and the rupee
Beyond AI, weak corporate earnings growth and the severe economic impact of the Iran war energy shock have compounded foreign outflows. With the RBI holding rates steady rather than cutting, markets need earnings momentum to justify current valuations, analysts said. A stabilising rupee, beaten to historic lows as surging crude prices worsened India’s terms of trade, would go a long way toward restoring investor confidence. RBI Governor Sanjay Malhotra said he expects healthy inflows from new measures including scrapping capital gains tax for foreign holders of government bonds and sweetening NRI dollar deposit schemes, adding that capital outflow curbs were not under discussion.
