From 5th to 7th: Why India is losing the stock market race against Asian rivals

Just a week ago, Taiwan overtook India to become the world's fifth-largest stock market. Now, South Korea has pushed India down another spot.

The development may come as a surprise given that India remains one of the world's fastest-growing major economies. But in today's markets, economic growth alone is not enough. Investors are increasingly chasing countries that sit at the heart of the artificial intelligence (AI) revolution, and that is helping Taiwan and South Korea race ahead in global stock market rankings.

On Tuesday, India's stock market slipped to seventh place globally by market capitalisation after South Korea's stock market crossed the $5 trillion mark, according to Reuters.

The combined value of companies listed on South Korea's KOSPI, KOSDAQ and KONEX exchanges rose to $5.01 trillion, overtaking the $4.85 trillion market value of companies listed on India's National Stock Exchange.

The latest move comes just days after Taiwan surpassed India to become the world's fifth-largest stock market.

The rapid shift has caught the attention of global investors.

"About 18 months ago, India's equity market cap was roughly 3.5 times South Korea's and more than twice Taiwan's. Fast forward just five months into 2026 and that lead has evaporated," Bernstein analysts Venugopal Garre and Nikhil Arela said in a note cited by Reuters.

WHY INDIA HAS FALLEN FROM 5TH TO 7TH IN MARKET RANKINGS

The reasons behind India's fall are both domestic and global.

Indian benchmark indices have struggled this year amid weak corporate earnings, foreign investor selling and concerns over higher energy prices.

Reuters reported that the Nifty 50 and Sensex have declined 10.1% and 12.5%, respectively, in 2026.

The Nifty IT index, which is the second-largest sector on benchmark indices, has fallen 19% as investors worry about slowing earnings growth and weaker global demand.

Foreign investors have also been pulling money out of India at a record pace.

According to Reuters, foreign portfolio investors have withdrawn $26.4 billion from Indian marketsso far in 2026. That has already surpassed the previous annual record outflow of $18.91 billion seen in 2025.

India's weight in the MSCI Global Standard Index has also dropped sharply, falling to 12.3% from a peak of 21% in September 2024.

Naomi Waistell, a fund manager at French asset management firm Carmignac, told Reuters that the decline reflects a major shift in investor positioning.

"It's really a remarkable decline and a restructure of the whole investment environment for us because of, obviously, the rise of South Korea and Taiwan as well," she said.

THE AI BOOM IS CREATING NEW STOCK MARKET WINNERS

The bigger story, however, lies in artificial intelligence.

Global investors are pouring money into companies that manufacture the chips powering AI models, data centres and cloud infrastructure.

Taiwan and South Korea happen to be home to some of the world's most important semiconductor companies.

Taiwan's stock market has benefited enormously from the rise of Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker and a key supplier to companies building AI infrastructure.

South Korea's rise has been driven by semiconductor giants Samsung Electronics and SK Hynix, both of which have seen strong investor interest due to growing demand for AI memory chips.

Reuters reported that South Korean chipmakers have helped drive a sharp rally in local stocks this year, while Taiwan's market has also benefited from the global rush into AI-related investments.

The message from investors is clear: if semiconductors are the backbone of artificial intelligence, then Taiwan and South Korea are among the biggest beneficiaries of the AI boom.

WHY INDIA IS NOT BENEFITING AS MUCH FROM AI

India has a thriving technology sector, but its stock market is not structured in the same way as Taiwan's or South Korea's.

Many Indian IT companies are service providers that help businesses use technology. Taiwan and South Korea, on the other hand, are home to companies that manufacture the physical chips needed to run AI systems.

This difference matters.

Abhay Laijawala, Managing Director and India Chief Investment Officer at Lighthouse Canton, told Reuters that the current market narrative is straightforward.

"AI is the defining theme and semiconductors are at its centre and within emerging markets, that story belongs to Taiwan and Korea, not India," he said.

Market expert Kranthi Bathini said the AI boom has become one of the biggest themes driving global equity markets.

According to Bathini, investors are willing to pay premium valuations for companies directly linked to semiconductor manufacturing because they are expected to benefit most from future AI spending.

"The South Korean market has been going up, too much money is going into the South Korean market as the global investors' focus has shifted, because of entities like Samsung and the chipmakers. They are attracting the attention of global investors," he added.

India has made progress in attracting semiconductor investments, but it remains in the early stages of building a large-scale chip manufacturing ecosystem.

As a result, investors looking for direct exposure to AI infrastructure are currently finding more opportunities in Taiwan and South Korea.

IS INDIA'S STOCK MARKET STORY OVER?

Not necessarily. Several experts believe the market may be overlooking India's role in the broader AI ecosystem.

Laijawala said India offers what he called a "picks-and-shovels" opportunity in the AI era.

In simple terms, India may not be producing the chips, but it can benefit from building the infrastructure that supports AI growth.

That includes investments in electricity networks, cooling systems, data centres, industrial real estate and digital infrastructure.

India also continues to enjoy strong domestic consumption, a growing middle class and one of the fastest economic growth rates among major economies.

These factors remain attractive for long-term investors.

WHAT INVESTORS SHOULD WATCH NEXT

The fall from fifth to seventh place in global stock market rankings does not mean India's growth story is broken.

Instead, it highlights how quickly global capital can move towards emerging themes.

Today, that theme is artificial intelligence.

Countries with large semiconductor ecosystems are attracting investor attention, while markets without major listed AI hardware companies are finding it harder to keep pace.

For India, the challenge is not just attracting investment but ensuring that it develops a larger presence in industries linked to the next phase of global technological growth.

For now, the AI boom has created a new stock market scoreboard. And while Taiwan and South Korea are climbing rapidly, India is still searching for its place in the race.