Rupee, Rinse, Repeat: Sitharaman Taps 2027's Biggest Bug as Foreign Money Logs a $33B Exit 🏦

India's Finance Minister Nirmala Sitharaman has identified continued capital outflows as one of the biggest risks facing India in 2027, speaking to CNBC on the sidelines of the IMF-World Bank meetings in Bangkok. The comments come as the country's benchmark stock indexes have slid sharply this year, with the NSE Nifty 50 down 12.13% since the start of 2026 and the BSE SENSEX off 12.78%. Foreign portfolio investors have sold more than $33 billion of Indian equities year-to-date, according to NSDL, and selling resumed in September after a brief pause. Foreign institutional investors withdrew $4.1 billion that month, reversing $2.4 billion of August inflows, HSBC Mutual Fund said. "Because of the ease of liquidity, ease of availability, people are even exiting easily," Sitharaman stated, attributing part of the weakness to excess liquidity in the market. She added that India's economic fundamentals remain fine.

Local institutions have moved in the opposite direction, buying $8.1 billion of equities in September, and equity mutual funds have recorded net inflows every month since March 2021. Indian IPOs raised $60.4 billion from 2021 to 2025, per EY, with selling shareholders taking $37.7 billion, or 63%, of that total. India priced a record of nearly $10 billion in equity deals in August. India's weight in the MSCI Asia Pacific ex-Japan index has slipped to 10% from 19% a few years ago, per Goldman Sachs, while Taiwan and Korea, home to AI champions, now hold 29% and 22% respectively. Sitharaman called the flight of capital toward AI and the US a concern, but said India would not be hurt if the AI bubble bursts, as it never drew such investment.

The rupee has come under pressure from the outflows along with high oil prices and rising US Treasury yields, prompting the Reserve Bank of India to step up intervention. Reuters reported the RBI has used about half of the $140 billion-plus it mobilized, with three economists placing spot dollar sales and swaps since June 8 at $75 billion to $80 billion. Reserves fell to $734.6 billion through October 2, about $51 billion below their early-September peak. Brokerage Ambit flagged the decline in usable reserves, after adjusting for forward shorts and gold, noting that a continued fall could raise doubts about the RBI's ability to defend the rupee and fuel more speculation. Ambit added that the RBI has stepped in whenever the rupee neared 97 per dollar over the past six months.