Market Cap Share – India share falls to 4-year low of 2.99%

One of the signals of the importance of the capital markets of a country in the global economy is the share of market cap. For India, India’s share of global market cap has been steadily slipping, and that is not a very encouraging piece of news!

The story of India’s falling share of global market cap

India’s share of global market cap peaked in September 2024 at 4.71%. That was the highest market cap share that India has ever enjoyed. However, since then, persistent FPI selling in Indian equities and a sharp rally in other EM equities resulted in this mismatch. As of May 2026, India’s market cap as a share of global market cap has fallen from a peak of 4.71% to 2.99%. Incidentally, this is the lowest share of India market cap in world market cap since the start of 2022. What has triggered this shift. It is a combination of FPI reallocation, absence of AI triggers, and stiff relative valuations.

FPI selling persistent since October 2024

Since the peak of FPI AUC in September 2024, the FPIs have been persistent sellers in Indian equities. In fact, in the six quarters starting October 2024, FPIs have been net sellers to the tune of $52 billion in Indian equities. When FPIs sell, it is not just about money going out of India. That money goes and gets invested in other markets. For example, much of the FPI money that went out of India in the last 6 quarters was invested in other emerging markets like Taiwan, Korea, and China. That triggered a rally in all these markets. It was a sort of double whammy for Indian market cap share. Not only, India lost market cap share, but other markets gained market cap share; magnifying the impact.

Absence of AI triggers were a key factor

One of the reasons proffered for this massive shifting of funds by FPIs from India to rest of Asia is the absence of AI triggers. To an extent that is true. Taiwan had its giants like TSMC and Korea had its Samsung. These are trillion-dollar companies which move the entire market. Several Chinese AI companies also attracted a lot of institutional buying. However, India did not have any such AI candidates. On the contrary, there were fears that Indian IT companies would actually face AI-driven disruption. Not surprisingly, Indian IT sector faced the brunt of selling by FPIs. For FPIs, it was more like a short on IT services and long on AI kind of trade. That led to the huge valuation drop.

Valuations were already stiff for Indian stocks

Amidst all these factors, there was one more factor that worked against India. It was stiff valuations. The Indian markets had reported high P/E ratios on the assumption that it would be able to sustain high levels of nominal GDP growth and high levels of profit and sales growth. While, the nominal GDP growth slowed, it had its impact on the sales and profit growth too. The situation only got exacerbated by factors like the punitive tariffs imposed by Trump and the geopolitical risk caused by the war. FPI sentiments, however, tend to be fickle as we have seen in 2009 and again in 2013. For India to get back its old market cap share, FPIs will have to come back in droves and invest in India!