Understanding Taiwan and South Korea’s Rise: India’s Stock Market Drop from 5th to 7th Largest Explained
In a rapid shift, the Indian stock market has fallen from the world’s fifth largest to the seventh largest by market capitalization. This decline follows Taiwan’s recent rise, which overtook India last week, and is now accompanied by South Korea’s market gains. The drop is attributed not only to the rallies in these countries but also to a significant outflow of foreign capital from Indian markets in recent quarters.
Factors Behind Taiwan and South Korea’s Rally
The surge in Taiwan and South Korea’s stock markets is primarily driven by the global semiconductor demand. Taiwan Semiconductor Manufacturing Company (TSMC) has significantly benefited from the AI boom, while South Korea’s Samsung Electronics and SK Hynix have also seen substantial gains. TSMC’s stock has rallied by 50%, contributing to over 40% of Taiwan’s market capitalization. South Korea’s market capitalization has reached $5 trillion, boosted by an 86% rise this year, largely due to the AI memory-chip boom.
Indian Stock Market Decline in Numbers
The BSE Sensex hit a record high of 86,159.02 on December 1, 2025, but has since fallen over 13%. This decline has been exacerbated by the US-Iran conflict. In contrast to the upward trends in markets like the US and South Korea, Indian stocks have experienced a double-digit drop. Major IT sector stocks in India have declined over 20%, while foreign portfolio investors have been net sellers in equities for most of the year, withdrawing Rs 32,963 crore in May alone. The total outflow from the equity market in 2026 has reached approximately Rs 2.3 lakh crore.
Reasons for the Decline in Indian Stock Markets
Several factors have contributed to the downturn in the Sensex and Nifty over the past year and a half. Many investors believe the markets are overvalued after a rapid rise in 2024. Concerns about capital gains taxation have also emerged. The global AI boom has largely bypassed India, with technology stocks in the US, South Korea, and Taiwan benefiting significantly. In India, major IT firms like TCS and Infosys have seen stock declines amid fears of AI-induced disruptions. Additionally, the imposition of tariffs on Indian goods in late 2025 led to a flight of foreign investors, further impacting the market.
As the US-Iran conflict escalated, foreign investors shifted to safer assets, leading to sell-offs in Indian equities. Rising crude oil prices have increased the import bill, putting additional pressure on foreign exchange reserves. Despite analysts’ confidence in India’s growth potential, inflation from rising fuel prices continues to concern investors.
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