Indian Equities Face First Annual Decline in Over a Decade Amid Foreign Outflows

A Reuters poll of 24 analysts projects the Nifty 50 to end 2026 with a 0.5 % loss, the first annual decline since 2015. The index is down about 8.5 % YTD, and foreign investors have sold over $23 billion of Indian equities in 2026, an outflow. Valued at 20× earnings with low yields, the market faces pressure from limited AI exposure and a current-account deficit. A February poll forecast a Nifty near 27,000 by mid-2027; the May poll lowered it to 26,000 by year-end.

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• Foreign outflows >$23 bn in 2026.

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• Nifty 50 down ~8.5 % YTD; projected 0.5 % loss.

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• IT index down >33 % since Dec 2024.

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• Valuation >20× earnings; dividend yield among world’s lowest.

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• SIP assets ~10× growth over ten years.

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• 13 of 24 analysts foresee a correction within three months.

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The outflow reduces foreign capital, risking a current-account deficit as export growth stalls and import costs rise on energy prices. Limited AI exposure leaves Indian equities out of the AI-driven rally, while valuation gaps pressure policymakers to boost innovation and earnings growth for domestic investors.

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Rajat Agarwal says India is on the wrong side of AI boom. Aman Sethia credits DIIs and retail SIP liquidity for stability, noting Nifty would have slipped to 19,000–20,000 without it. Kishan Gupta points to stagnant exports, rising import bills and missing innovation culture. Analysts cite weak earnings growth and an overvalued equity premium driving the outflow.

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Critics say corporate sector has failed to generate AI-driven cash flows, leaving the market vulnerable. Reliance on high valuations without matching earnings growth raises sustainability concerns, and a widening current-account deficit from the Middle-East conflict heightens investor wariness.

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The February poll projected a Nifty near 27,000 by mid-2027; the May poll lowered it to roughly 26,000 by year-end, showing divergent expectations. Detailed foreign-ownership percentages and exact composition of the $23 billion outflow remain undisclosed.

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• “AI is ?where the flavour of the town is right now and this is where India, not just we lack it, we are actually on the wrong side," said Rajat Agarwal, Asia equity strategist at Societe Generale.” — Rajat Agarwal, Asia equity strategist, Societe Generale

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• “It is thanks to local DIIs and liquidity from retail participants the market has held up," said Aman Sethia, head of treasury at Groww.” — Aman Sethia, head of treasury, Groww

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• “Our exports are not growing and we know import bills will swell now with high energy prices.” — Kishan Gupta, director, CD Equisearch

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Analysts expect a possible correction within three months, after which the Nifty could recover to around 27,000 by mid-2027 if earnings improve and AI investment picks up.

Reuters