India may soon fall behind South Korea and Taiwan in terms of market capitalization if current trends continue. Riding the wave of the artificial intelligence (AI) boom, South Korea’s market value soared by 190 percent to reach $4.59 trillion over the past year, while Taiwan’s market capitalization rose nearly 90 percent to stand at $4.67 trillion. In comparison, India’s market capitalization is currently at $5.02 trillion. The Indian market has experienced a consistent downward-to-sideways trend over the last couple of years, largely influenced by foreign investors’ risk-off sentiment impacting its equity market.
Foreign Institutional Investor (FII) selling has intensified following a net withdrawal of approximately ₹1.80 lakh crore in FY26, with over ₹75,000 crore sold in just 35 days of FY27, marking a 14-year low of 16.13 percent in FIIs’ share, according to recent data from primeinfobase.com.
In light of these developments, JP Morgan has downgraded India’s investment weight to Neutral. The firm noted that the large-cap index, encompassing Sensex and Nifty, lacks adequate representation in sectors such as AI, data centers, and semiconductors compared to markets in the US, South Korea, China, and Taiwan.
Ambit Capital’s Forecast
In 2015, Ambit Capital predicted that leading companies in the Sensex, including Reliance Industries, SBI, ONGC, Bharti Airtel, HDFC, Tata Steel, and L&T, could potentially exit the benchmark index within the next decade. This forecast was made with optimism about the new government led by Prime Minister Narendra Modi, forecasting substantial changes in business practices in India would lead to a new generation of companies rising to prominence, while 15 current constituents might be displaced.
Index Rebalancing Dynamics
Market indices periodically undergo rebalancing to ensure their accuracy and relevance amid evolving market conditions. Ambit Capital’s analysis of the churn within the Sensex over ten-year intervals revealed a peak of 67 percent churn, indicating 20 replacements in the index, during the years following the 1991 reforms (1993-95). This figure later dipped to a low of 27 percent (eight replacements) between 2004 and 2014, when legacy firms like Century Textiles and GSFC departed the index due to disruptions caused by reform measures.
Despite the bold predictions from Ambit Capital, new-age companies have yet to match the scale needed to challenge the established firms. Nonetheless, there remains a chance for reinvention, particularly as older economy companies in sectors including defense, energy, automobiles, and oil increasingly adopt AI and robotics to maintain competitiveness.
Fintech Innovations
India’s fintech sector is also witnessing transformative changes, with the Unified Payments Interface (UPI) emerging as a leading global example of digital innovation. The anticipated listing of the National Payments Corporation of India, which manages UPI, could facilitate greater representation of innovative firms within indices and generate increased interest in Indian stocks. The domestically developed Sarvam.AI is another notable entity contributing to this landscape.
To truly compete on the global stage, India requires more innovative companies capable of scaling operations, particularly in sectors such as semiconductors, green hydrogen, renewable energy, electric vehicles, data centers, aerospace, and biotechnology. While it is essential to acknowledge the contributions of traditional industries that are substantial job creators, the potential for growth remains robust as these sectors strive for excellence and compete against international giants.
Published on May 8, 2026
