Inside India newsletter: Why Taiwan and South Korea’s stock markets have surged past India within a week Global investors are increasingly favoring AI-related stocks, causing a significant outflow of funds from India, which lacks major AI players. Simultaneously, India’s domestic consumption is weakening due to inflation, a weaker rupee, and slower job creation, impacting corporate earnings and foreign investor confidence. This has led to Taiwan and South Korea surpassing India in market capitalization, a stark reversal from India’s previous strong performance.

• Global investors are prioritizing AI-related stocks, leading to substantial foreign investment outflows from India.
• India’s domestic consumption story is weakening due to higher inflation, a weaker rupee, and reduced job creation.
• Taiwan and South Korea have recently surpassed India in market capitalization, reversing India’s prior market dominance.
• India’s IT sector faces long-term challenges from automation and AI adoption, impacting its competitive advantage.
• High equity valuations in India, coupled with moderate earnings growth and geopolitical headwinds, deter foreign investors.
• Foreign investors have sold $27.6 billion in Indian equities since January, exceeding the total for 2025.
• Taiwan’s market cap reached nearly $5 trillion, surpassing India, and South Korea also moved ahead of India in market ranking.
• Indian benchmark indices have fallen over 10% year-to-date, underperforming Asian peers like South Korea and Taiwan.
• India lacks a semiconductor manufacturing ecosystem, and its IT services are focused on labor arbitrage rather than riskier AI development.
• Despite the AI theme, some experts suggest high valuations and moderate earnings growth are primary reasons for investor exits from India.