India's share of the MSCI Emerging Markets index has fallen from about 19% to roughly 12% over the past year, as foreign investors pulled a net $21 billion from Indian equities so far in 2026. Foreign ownership of Indian markets now sits at a 14-year low, trailing domestic institutions for the first time in more than two decades. The country's market value peaked near $5.73 trillion in September 2024, with about $924 billion erased since then.
AI-led reallocation reshapes global flows
Roughly two-thirds of the capital moving out of India is tied to AI positioning, according to M&G Investments. The money is flowing into markets where AI-related companies dominate. Taiwan's TAIEX has climbed roughly 42% year-to-date, and South Korea's KOSPI has set fresh highs thanks to AI chip strength. The shift underscores how generative AI is not just a tech story—it's reshaping how fund managers allocate across emerging markets.
Indian IT sector under pressure
India's $315 billion IT services sector is feeling the heat. The Nifty IT index fell about 26% in 2026, while the broader Nifty 50 is down close to 9%. Tata Consultancy Services and Infosys hit fresh 52-week lows after OpenAI announced a new enterprise deployment unit, the OpenAI Deployment Co, aimed at helping businesses build around intelligence. Around 15 million Indians work in IT services and global capability centers, roles increasingly at risk from AI-driven automation that can handle coding, testing, and back-office work.
Selling may be near exhaustion
Goldman Sachs estimates that heavy foreign institutional selling in Indian equities may be approaching exhaustion. That suggests the pace of outflows could slow, though the structural shift toward AI-heavy markets may persist. Domestic institutions have stepped in to absorb some of the selling, but with foreign ownership now at its lowest in 14 years, the question is whether local buyers can sustain the market if foreign funds continue to rebalance toward AI-driven economies.
India's IT sector faces a longer-term challenge as generative AI tools automate tasks that once required large teams. The OpenAI announcement, combined with the broader trend, leaves Indian tech firms racing to adapt—and investors watching to see whether the country can pivot from service-led growth to an AI-enabled model before more value shifts to Taipei and Seoul.
