Finance Minister Nirmala Sitharaman has identified a global trend of money moving toward AI-focused markets as a key reason for the recent foreign fund exodus from India. With over $33 billion withdrawn, the government is now reviewing tax policies and IPO exit rules to help stabilize investor sentiment and encourage long-term domestic participation.
Finance Minister Nirmala Sitharaman has addressed the recent selling pressure in Indian equities, pointing to a global shift in how capital is being allocated. Speaking on the sidelines of the IMF-World Bank meetings, the Minister highlighted that the massive interest in artificial intelligence has drawn significant money away from India toward markets like Taiwan and South Korea, which are deeply integrated into the global AI supply chain. This rotation has resulted in foreign portfolio investors withdrawing more than $33 billion from the Indian market this year, creating a challenge for domestic market stability.
Beyond global investment shifts, the government is also monitoring how liquidity is being managed within the domestic market. There is growing scrutiny on the amount of capital exiting through Offer For Sale transactions and IPOs. Recent reports indicate that nearly $37 billion was raised via new listings between 2021 and 2025, with a significant amount of this capital flowing to insiders exiting their positions. This trend has prompted a broader discussion on whether the government should introduce measures to discourage rapid insider exits, ensuring that the market remains focused on building long-term value rather than just providing liquidity for early investors.
In response to these market conditions, the government is actively exploring potential changes to the tax regime. The Finance Minister emphasized that the administration is attentive to market feedback, particularly regarding equity taxation. There is an active dialogue about reforming the Long-Term Capital Gains tax structure, with proposals from institutions like SBI Research suggesting that tax benefits could be linked to longer holding periods for investors. While no immediate policy changes have been finalized, the government's openness to these reforms suggests an effort to make the Indian market more attractive to domestic savers and to reduce reliance on volatile foreign fund flows.
For investors, the situation highlights a move toward a more cautious environment where policy support and domestic liquidity will play a larger role. The key factor to track in the coming months will be any formal announcements regarding tax policy or changes to IPO regulations. These updates could influence how capital is treated in the Indian market, potentially rewarding long-term holding patterns while attempting to balance the needs of both new listings and established shareholders.