In today's FirstScroll, we break down why foreign money is leaving the Indian stock market despite a 10 per cent growth target, and why the global AI boom is actually to blame.
The Story
Picture a fund manager in a glass-walled office in Manhattan. He is staring at two computer screens. On the left, India's economy is humming along at its fastest pace in years, with every sign of a long-term boom.
On the right, a massive tidal wave of capital is rushing into artificial intelligence (AI) stocks in New York, Seoul, and Taipei. He has to decide where his next billion dollars will go. He looks at his Indian holdings, sees they have already gained value, and decides to cash out to join the AI party.
This is not a hypothetical scenario. It is exactly what happened this September. Foreign Portfolio Investors (FPIs), the big global funds that move money across borders like professional tourists, suddenly hit the exit button on Indian equities.
Then, the scale of the exit became clear. After being net buyers in July and August, FPIs did a complete U-turn and withdrew ₹23,676 crore through September 19. Just a few days later, on September 25, they sold another ₹4,521.96 crore in a single day.
And here is the strange part. This selling spree is happening while India's government is setting an ambitious target for the economy to grow at over 10 per cent. Usually, investors run toward growth, not away from it.
So here's the question: if India's economy is firing on all cylinders, why are foreign investors packing their bags and taking their billions elsewhere?
You see, the problem is not that India is doing anything wrong. It is that the rest of the world has found a shiny new distraction called the AI rotation, which is sucking the oxygen out of every other market.
Think of the global stock market as a massive buffet. For a long time, India was the best main course available. But suddenly, the restaurant brought out a tray of AI-flavored desserts in the US and Taiwan, and every guest is rushing to the dessert table, even if it means leaving their half-finished dinner behind.
This dessert is incredibly expensive. According to Ashish Chauhan, the CEO of the National Stock Exchange (NSE), the AI story has pushed the American market cap from $25 trillion to about $75 trillion. When that kind of money moves, it creates a vacuum everywhere else.
Now add the second ingredient: timing. FPIs are cyclical investors. They do not just buy and hold forever; they rotate their money to wherever the fastest gains are happening right now. During 2026 to 2027, up to September 21, FPIs registered net outflows of $4.9 billion, mostly driven by this rotation out of Indian stocks.
You might wonder why they would leave a country where the economy grew at 7.8 per cent in the most recent year. The answer lies in the sheer force of the "AI beneficiaries" in other regions. In China, for instance, the market has split in two.
While Chinese consumer stocks plunged roughly 18 per cent over the past six months, their tech gauge is soaring. Investors are so desperate for AI exposure that they are dumping everything else. Consumer staples firms in China even missed profit expectations by nearly 50 per cent as capital fled to technology firms.
So who wants what here? The foreign investor wants the highest possible return in the shortest time, which currently means betting on computer chips and software in the US and Korea. The Indian government, meanwhile, wants steady capital to fund its 10 per cent growth dream.
Now, this might sound like a crisis, so why should you care? Because when FPIs sell, it puts pressure on the rupee and can make you wonder why did the stock market crash as analysts predicted it would double. It creates a disconnect between how the average citizen feels about the economy and what the ticker tape says.
This is where the concept of the "India growth story" meets the reality of global finance. Finance Minister Nirmala Sitharaman argues that even though FPIs are selling, the underlying strength is real. She believes the India GDP Disconnect is just a matter of perspective, as the country continues to reform its space and nuclear sectors for private players.
But here's the twist. The reason foreign investors are leaving India to find AI stocks is partly because they cannot find enough of them here. Sitharaman notes that while India has many AI unicorns, very few are actually listed on our stock exchanges.
Because these tech giants are still private, they are invisible to the big pension funds and mutual funds that trade on the NSE. To an outsider tracking listed firms, it looks like India missed the AI bus, even if the startup ecosystem is actually buzzing with satellite builders and drone-mapping firms.
There is also a question of the cycle peaking. Ashish Chauhan, who is intimately familiar with the reasons why the NSE IPO keeps getting delayed, believes this AI boom has reached its limit. His view is that once the AI frenzy in the US and East Asia cools down, that money will eventually come back to India.
Now to be clear, AI is not the only reason for the exit. Global bond yields are rising, and tensions in West Asia have made investors nervous. When the world gets scary, foreign investors often pull money out of "emerging markets" like India first, simply because it is the safest way to protect their cash.
So, is the foreign sell-off about India's economy failing? Not really. It is about a global reshuffle where investors are trading long-term growth for short-term tech gains.
India is betting that its domestic engine, powered by startups and 10 per cent growth targets, will be strong enough to wait out the cycle. Whether the AI fever breaks before India's patience does is something only time will tell.
Until then…
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