India has long been one of the world’s fastest-growing major economies. Strong domestic demand, infrastructure spending, digitalisation, and a growing middle class helped make the Indian stock market a preferred destination for global investors. As a result, India has secured a strong position among the world’s largest stock markets in recent years.
However, the global investment landscape is changing rapidly in 2026. Investors are no longer focusing solely on economic growth rates. Their attention has increasingly shifted towards opportunities linked to Artificial Intelligence (AI), semiconductors, and advanced technologies. Amid this shift, India has slipped from fifth to seventh place in the global stock market rankings, while South Korea and Taiwan have moved ahead.
Let us understand the reasons behind this change and why India is lagging behind its Asian peers.
What’s Happening?
Until recently, India was the world’s fifth-largest stock market. However, in early June 2026, Taiwan and South Korea overtook India in terms of market capitalisation.
As of 1 June 2026, South Korea’s total market capitalisation stood at approximately $5.04 trillion, while India’s market capitalisation was around $4.84 trillion. Taiwan moved into fifth place with a market capitalisation of nearly $5.15 trillion.
Over the past year, South Korea’s stock market has surged by around 86%, while Indian equities have remained under pressure. So far in 2026, the Nifty 50 has declined by approximately 10.1%, while the Sensex has fallen 12.5%. Meanwhile, the Nifty IT Index, the second-largest sector within the benchmark index, has dropped nearly 19%.
At the same time, Foreign Portfolio Investors (FPIs) have withdrawn around $26.4 billion from Indian markets in 2026 so far, adding further pressure on equities. This suggests that global investors are increasingly prioritising technology leadership and future earnings potential alongside economic growth.
How South Korea and Taiwan Captured the Market
The AI revolution lies at the heart of this shift.
Taiwan is home to TSMC, the world’s largest contract chip manufacturer, while South Korea’s Samsung Electronics and SK Hynix are benefiting from the growing demand for AI-related memory chips. The rapid expansion of AI data centres, cloud computing, and high-performance computing has significantly boosted the earnings and valuations of these companies.
As a result, global investors are allocating substantial capital to businesses involved in manufacturing chips that power AI models, data centres, and cloud infrastructure. Semiconductor and high-bandwidth memory companies account for nearly 60% of the total market capitalisation in Taiwan and South Korea, making both economies central to the global AI supply chain.
The message from investors is clear: if semiconductors are the backbone of AI, then Taiwan and South Korea are among the biggest beneficiaries of this technological transformation.
India’s Long-Term Growth Story Remains Strong
Despite slipping in the global stock market rankings, India’s economic fundamentals remain robust.
According to the IMF, India’s economy is expected to reach approximately $4.15 trillion in 2026, more than double the estimated size of South Korea’s economy, which is projected at around $1.93 trillion. This is one reason many global institutions continue to remain optimistic about India’s long-term growth prospects.
Morgan Stanley believes that the Indian stock market could enter a new growth cycle. Improving corporate earnings, strong domestic investment flows, rising IPO activity, and supportive government policies could provide a foundation for future growth.
The brokerage also expects India’s investment-to-GDP ratio to rise to 37.5% over the next five years, potentially creating opportunities across sectors such as energy, defence, semiconductors, fertilisers, and data centres.
What Does This Mean for Investors?
India’s decline in the global market rankings does not diminish its long-term investment potential. Strong domestic consumption, a growing middle class, infrastructure development, and manufacturing expansion continue to support the country’s growth outlook. Therefore, it would be premature to judge India’s prospects solely based on its stock market ranking.
However, the development also highlights an important trend: global capital is increasingly rewarding markets that offer direct exposure to AI and technological innovation. As a result, investors may want to monitor sectors linked to AI, including data centres, power infrastructure, digital technology, and companies with strong business fundamentals.
For long-term investors, periods of market weakness can also create opportunities to accumulate fundamentally strong businesses at more attractive valuations.
What’s Next?
In the years ahead, India’s growth story is likely to extend beyond a consumption-driven economy. Morgan Stanley expects sectors such as manufacturing, data centres, and energy infrastructure to play a larger role in the country’s economic expansion.
At the same time, rising investments in AI and digital infrastructure could position India among the world’s fastest-growing infrastructure markets. A young population, increasing incomes, and India’s growing contribution to global GDP growth are additional factors that could support long-term development.
That said, challenges remain. Geopolitical tensions, a potential global economic slowdown, dependence on oil imports, and concerns around agricultural productivity continue to pose risks.
Nevertheless, if India succeeds in improving investment levels, productivity, and manufacturing capacity, the current decline in rankings may prove temporary, allowing the country to re-establish itself as a key destination for global investors.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
