India’s Market Cap Sinks Below $4 Trillion Amid FPI Exodus

India’s stock market has witnessed a sharp downturn, with its market capitalization falling below the $4 trillion mark for the first time in over 14 months. The decline, driven by a weakening rupee and heavy stock market corrections, places India among the worst-performing global markets in 2025. According to Bloomberg, India's total market cap now stands at $3.99 trillion, a steep fall from its mid-December 2024 peak of $5.14 trillion, marking a $1 trillion erosion in just two months. This 18.33% drop in market capitalization is the steepest globally, followed by Zimbabwe (18.3%) and Iceland (18%).

The primary triggers for this downturn include a 2.6% decline in benchmark indices Sensex and Nifty, while broader indices like BSE MidCap and SmallCap have been hit even harder, plunging over 12% and 15%, respectively. The slump has been further fueled by sustained foreign portfolio investor (FPI) outflows, with over $10 billion exiting Indian equities since the beginning of the year. This marks the worst six-week start for the Indian markets in nearly a decade, as FPIs shift capital toward U.S. debt securities, which have become more attractive amid rising yields and a stronger dollar. The Indian rupee has weakened nearly 1.5% against the U.S. dollar, making it the second-worst performing Asian currency after the Indonesian Rupiah.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Adding to the market’s woes are concerns over slowing corporate earnings and elevated valuations. Indian stocks have long been regarded as expensive relative to their global peers, and recent comments by valuation expert Aswath Damodaran have further intensified debates about their sustainability. He reiterated that Indian equities remain among the most overvalued in the world, despite the country’s strong economic growth. Meanwhile, ICICI Pru AMC’s Chief Investment Officer, S. Naren, cautioned investors against systematic investment plans (SIPs) in mid and small-cap funds, citing heightened market volatility and the uncertainty surrounding long-term returns. His remarks at the IFA Galaxy Conference triggered further discussions among investors, adding to the already bearish sentiment.

The broader global market landscape presents a stark contrast to India’s downturn. The U.S. market has gained 3% in market capitalization year to date, while China and Japan have each posted 2.2% gains. Major economies, including Hong Kong, Canada, the UK, and France, have recorded gains of 1.2%, 7.2%, 7.1%, and 9.9%, respectively. This divergence highlights India’s relative underperformance compared to other key markets.

Adding to concerns is the uncertainty surrounding U.S. President Donald Trump’s trade policies. His recent tariff impositions on steel, aluminum, and Chinese imports have heightened fears of a global trade war, discouraging foreign capital from emerging markets like India. Given these geopolitical risks, foreign investors remain wary, opting for safer assets in developed markets.

Despite these challenges, some analysts believe that the current market correction could create attractive long-term entry points for investors. Historically, Indian markets have rebounded strongly from such downturns, driven by domestic consumption and structural growth drivers. However, in the near term, market volatility is likely to persist as global macroeconomic conditions and FPI flows continue to influence investor sentiment.

The latest data from Bloomberg excludes ETFs and ADRs to ensure accurate representation of the country’s actively traded securities. As a result, the reported market capitalization values may be lower compared to figures from other sources, but the overall trend remains unchanged—India’s stock market is facing a significant correction, and investors must tread cautiously amid global and domestic uncertainties.