Global investors are rerouting capital away from India and into Asian markets tied to AI infrastructure, leaving the country at risk of falling out of the world’s five largest stock markets for the first time in three years.
The shift goes beyond one quarter of weak earnings. It reflects a structural change in how AI exposure now drives capital allocation across emerging markets, with India holding a few of the names global funds want to own right now.
Capital Flight Pulls India Down the MSCI Rankings
India’s weight in the MSCI Emerging Markets index has dropped to about 12% from roughly 19% a year ago, according to index provider data.
Reports indicate that foreign investors have withdrawn a net $21 billion from Indian equities so far in 2026.
Goldman Sachs estimates foreign ownership of the market sits at a 14-year low and now trails domestic institutions for the first time in more than two decades.
Roughly two-thirds of the reallocation reflects AI positioning, M&G Investments said.
Since the country’s market value peaked near $5.73 trillion in September 2024, about $924 billion has been erased from Indian equities.
Taiwan and South Korea Absorb the Capital India is Losing
Taiwan’s TAIEX has climbed roughly 42% year-to-date, while South Korea’s KOSPI has set fresh highs on AI chip strength, according to exchange data. Together, the two markets have added several trillion dollars in equity value over the past year.
Their listed champions, led by TSMC, Samsung, and SK Hynix, sit directly on the AI buildout that Indian companies do not supply.
The same rotation is bleeding into newer products such as a hybrid crypto-equity benchmark from S&P Global that pairs large-cap stocks with leading AI-linked tokens.
GenAI Squeezes India’s IT Services Giants
The Nifty IT index has fallen about 26% in 2026, while the broader Nifty 50 is down close to 9%.
Tata Consultancy Services and Infosys, which anchor India’s $315 billion IT services sector, hit fresh 52-week lows after OpenAI announced a new enterprise deployment unit.
Generative AI tools are automating the coding, testing, and back-office work that those firms have built their margins on.
Some 15 million Indians work in IT services and global capability centers, putting an entire layer of the economy in the path of AI-driven agents.
Indian policymakers are pushing semiconductor incentives, data center expansion, and a national AI mission. However, the next several quarters will show whether those bets can stop the structural drift away from the country’s equity market.
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