Key facts
- India's economy is growing at over 7% while its stock market is one of the world's worst performers in 2026.
- The Sensex and Nifty indices have seen their longest losing streak in 25 years, with losses for eight straight weeks.
- Indian mom-and-pop investors have seen their wealth erode by about 15% this year.
- Foreign institutional investors have withdrawn $40 billion from Indian markets in the past two years.
- Domestic mutual fund assets under management have grown to $900 billion this year.
- Crude oil prices have hovered between $90 and $100 a barrel due to Middle East conflict.
India's stock market is experiencing one of its worst performances in 2026, despite the nation's economy growing at an impressive rate of over 7%. The benchmark Sensex and Nifty indices have seen an eight-week losing streak, the longest in 25 years, leading to a 15% erosion of wealth for domestic retail investors this year.
Foreign institutional investors have withdrawn approximately $40 billion over the past two years, nearing zero on aggregate for the past decade. This outflow is attributed to several factors, including persistent energy shocks from Middle East conflict, which have kept crude oil prices between $90 and $100 a barrel. Hari Shyamsunder, a fund manager at Franklin Templeton Asset Management India, noted that prices above $100 stress macro-economic variables, inflation, and company earnings.
Rising global interest rates, with US government bonds yielding above 5%, are also drawing capital away from riskier emerging market assets like Indian equities towards safer investments. This is compounded by a weaker rupee, which has resulted in muted dollar returns for foreign investors, averaging only 6% annually over the past decade.
Valuation concerns persist, although Indian stocks are now cheaper relative to their emerging market peers than in previous years. However, they remain expensive compared to earnings, particularly when contrasted with companies in South Korea and Taiwan that have benefited from the artificial intelligence boom. Bernstein Research highlighted that many of India's large companies represent a "bygone economic era" and are not sufficiently investing in future growth areas like AI, which is seen as a major missing piece in India's economic narrative. While India is investing in data centers and chip fabrication, it has yet to produce global AI giants.
Despite the market downturn, domestic savings into mutual funds have remained resilient, with assets under management growing to $900 billion this year from $125 billion in 2016. However, this resilience faces a test if the market correction deepens.