Excess liquidity weighing on Indian equities, says Finance Minister Nirmala Sitharaman

Excess domestic liquidity in the equity market has contributed to the underperformance of stocks and could remain a challenge, Finance Minister Nirmala Sitharaman has said. In an exclusive interview with CNBC on Friday, on the sidelines of the IMF-World Bank meetings in Bangkok, Sitharaman said the easy availability of liquidity was encouraging investors to exit equity positions more readily. She, however, maintained that the underlying fundamentals of the Indian economy remained strong.

Benchmark equity indices have declined nearly 12% in 2026, despite resilient economic growth amid trade-related uncertainty and geopolitical disruptions. The market has also faced record foreign investor outflows, which Sitharaman identified as one of the key risks facing the country in 2027. Surging oil prices caused inflation concerns across the world this year.

Another factor leading to the dampening of sentiment in Indian market was US 10-year Treasury bond yield touching new highs this year.

Despite the withdrawal of overseas capital, domestic investors continue to provide support to the market. Equity mutual funds in India have reported net inflows every month since March 2021, according to data released earlier this month by the Association of Mutual Funds in India (AMFI).

The sustained inflows highlight the strength of domestic investment even as foreign capital outflows and persistent market weakness continue to weigh on Indian equities.

Equity-oriented mutual fund schemes recorded net inflows of Rs 38,306.55 crore in September, registering a nearly 31% increase from Rs 29,328.62 crore in August, according to the latest data released by the Association of Mutual Funds in India (AMFI).

Net investments in equity funds rose by Rs 8,977.93 crore month-on-month, signaling a significant acceleration in investor inflows during September. The rise comes after equity funds had already recorded a nearly 19 percent increase in inflows in August.