India Stocks Fall as FIIs Chase AI Boom Abroad

India's stock market has shifted from being a top performer to one of the worst-performing globally, despite being the fastest-growing large economy. This underperformance, observed from 2025 into 2026, is largely attributed to sustained Foreign Institutional Investor (FII) selling. These capital outflows have not only weakened the Indian rupee but also triggered a self-reinforcing cycle of currency depreciation and further selling.

The principal driver for these outflows appears to be the ongoing Artificial Intelligence (AI) trade. India, not being a major participant in this AI boom, has seen FIIs divert capital to markets like the US, South Korea, and Taiwan, where tech giants such as Nvidia and TSMC are leading the rally. Companies like Nvidia have seen their market capitalization soar to $5 trillion, while TSMC, Samsung, and SK Hynix have significantly driven gains in their respective markets.

While FII outflows have impacted the market in the short term, many experts believe India's long-term growth prospects and diverse sectors remain attractive. The current AI stock boom is considered by some to be in bubble territory, suggesting a potential correction. If India's earnings growth prospects improve, this could prompt FIIs to return as buyers, recognizing India's strong underlying economic story.