Foreign Investors Sell $21 Billion in Indian Stocks in Past Two Months Amid Global AI Shift

Foreign investors have pulled $21 billion out of Indian stocks in the last two months, putting 2026 on track to be the worst year for outflows since the markets opened to overseas investment in 1993. The sustained exits mark a sharp reversal from earlier optimism about India's growth story.

Investors are instead looking to South Korea and Taiwan, where stocks are booming on the back of AI chip demand.

Semafor reported that India has been hit especially hard by the ripple effects of the Iran war. New Delhi recently urged Indians to travel less and stop buying gold as authorities sought to stem pressure on the country's external accounts. The rupee has weakened considerably in response to the combined forces of outflows and regional instability.

Adding to the markets’ pain, the digital arm of Reliance Industries is now rethinking its IPO. The offering was originally set to let existing investors cash out. It will instead be a fresh share sale to avoid worsening outflows, according to Semafor.

The change in IPO structure reflects broader caution across Indian corporate boardrooms as foreign portfolio investors continue their retreat. The $21 billion withdrawal over just two months already signals a pace that would eclipse any full-year record since overseas investment was first permitted.

Indian stock markets opened to overseas investment in 1993, a liberalization that helped transform the country's capital markets into one of Asia's deepest.

This year's reversal stands in contrast to the steady inflows that characterized much of the past three decades. The shift toward South Korea and Taiwan comes as global capital chases exposure to semiconductor supply chains tied to artificial intelligence. Demand for AI-related chips has lifted equities in both markets even as Indian benchmarks have come under pressure.

The Iran war's ripple effects have compounded domestic challenges. Government appeals to reduce overseas travel and curtail gold imports represent an attempt to conserve foreign exchange at a time when the rupee has already weakened considerably. Reliance Industries' decision to restructure its digital unit's IPO underscores how market conditions are influencing corporate timing and deal design.

By opting for a fresh share sale rather than allowing existing investors to exit, the company aims to limit additional selling pressure on already strained flows. The cumulative $21 billion outflow since early 2026 has erased gains for many domestic institutional investors who had anticipated continued foreign buying.

With the year still young, the current trajectory points to an unprecedented annual departure of overseas capital from Indian equities.