There are two questions people keep asking about Indian markets this year. First, is the endless stream of new shares hitting the market- IPOs, QIPs, promoters and the government selling stock- the real reason our market has struggled? Second, if our economy is doing so well, why are markets in Germany, Pakistan, Brazil, and Mexico beating us? The honest answer is that both questions come from an instinct: blame the thing you can see and measure, but the real picture only makes sense once you put the paper supply story and the global comparison story together. They are two symptoms of the same underlying disease.
Start with the paper supply. What is it, really?
When a company needs money, it can raise it in a few ways. An IPO is a private company selling shares to the public for the first time. A QIP is an already listed company selling more shares quickly to big institutions like mutual funds. An OFS, or offer for sale, is when an existing large shareholder, usually the promoter or the government, sells shares they already own directly to the market. All three add paper, meaning shares, that the market has to absorb with real money.
The scale here has genuinely been enormous. Companies raised Rs 1.75 lakh crore through IPOs in 2025, the best year for IPO fundraising since the year 2000. In FY26, total equity fundraising touched Rs 2.4 lakh crore, and within that, preferential share sales alone more than doubled to Rs 1.3 lakh crore, while rights issues jumped 172 per cent. That is a genuinely large amount of new stock landing on investors’ plates.
But here is the twist that breaks the simple promoters are dumping shares story. QIPs, the instrument most associated with existing companies cashing in on high prices, actually fell 47 per cent in FY26, and the number of QIP deals dropped from 95 in 2024 to just 35 in 2025. If promoters were flooding the market to cash out, you would expect QIPs to rise, not collapse. Most of the fresh supply came from brand new IPOs, meaning new companies joining the market, not existing owners running for the exit. Government stake sales, like the recent Hindustan Copper OFS, have added some supply too, but at roughly Rs 2,900 crore, that is a rounding error next to the bigger number below.
The bigger number: foreign investors have been selling at a scale supply alone cannot explain
Foreign Institutional Investors, or FIIs, pulled out over Rs 2.54 lakh crore from Indian shares in just the first five months of 2026, already more than the whole of 2025. By mid-year, that figure had crossed Rs 2.6 lakh crore, against roughly Rs 1.66 lakh crore for all of 2025. FII ownership of Indian shares has fallen to a fourteen-year low. Money leaving the market that fast moves prices far more violently than a steady calendar of new share sales ever could. So when people say supply is the real culprit, the honest correction is that supply has added a real, structural drag, but foreign selling has been the bigger and faster force actually pushing prices down.
Who has been buying while foreigners sold? Ordinary Indian investors, through mutual funds and SIPs, meaning the small monthly investments millions of people make automatically. Domestic mutual funds now own roughly 21 per cent of the Nifty 500, ahead of the foreign share of around 17 per cent, for the first time, absorbing close to 90 per cent of the foreign selling through record SIP inflows. This is genuinely good news for market stability, but it also means Indian retail money is now absorbing both the foreign selling and a heavy new share supply at the same time, a double load that did not exist a few years ago.
Now, why is India losing to Germany, Pakistan, Brazil and Mexico despite better GDP numbers?
This is where people make an honest but mistaken comparison, judging different markets purely by how much their index has gone up, without asking where each one started from or what currency the gain is measured in.
Pakistan’s KSE 100 jumped about 44 per cent in FY26. That sounds incredible until you realise Pakistan’s market was recovering from crisis level valuations after years of economic distress. A market that was priced for near collapse, then gets a debt rating upgrade and returns to international bond markets, will naturally re-rate sharply. India started this year expensive, not cheap, so it does not have that same springboard.
Germany’s DAX has hit repeated record highs too. But most companies in the DAX earn the bulk of their money outside Germany. The index has actually decoupled from Germany’s own weak domestic economy. It is really a basket of global exporters, several of them defense and industrial companies like Rheinmetall and Airbus, riding a wave of European rearmament spending. That has almost nothing to do with German GDP, and even less to do with Indian GDP.
Brazil and Mexico are commodity and interest rate plays. Their markets have rallied as their currencies, especially Brazil’s real, stayed stable, which matters enormously because currency moves directly change what a foreign investor actually earns in dollars.
And that currency point is the missing piece in the India puzzle. The rupee has weakened noticeably through 2026. Every bit of rupee depreciation eats directly into the dollar returns a foreign investor earns, even if the Sensex itself is roughly flat. On top of that, global money chasing the artificial intelligence theme has poured into Taiwan and South Korea, up 40 and 62 per cent in dollar terms this year, respectively, simply because those countries sit inside the global AI chip supply chain. India has no comparable AI hardware story, so it gets skipped over in that rotation, regardless of how healthy its GDP looks.
Putting it together
India’s economy really is doing well, growing 7.8 per cent in the June 2026 quarter, still the fastest among large economies. But GDP measures the size of the economy, not what a share is worth relative to its price, its currency, or where global money currently wants to be. India went into this year expensive while Pakistan, Brazil and Mexico were cheap. India’s currency weakened while Brazil’s held firm. India has no AI hardware exposure while Taiwan and Korea do. And on top of all three of those headwinds, India also had to absorb heavy new share supply and record foreign selling at the same time, with domestic retail investors left to carry most of that weight through their SIPs.
What could turn things around, and what to watch
FII selling needs to ease. A reversal, even a partial one, would matter more than any single domestic reform. Analysts already describe the current selling as nearing exhaustion. Watch monthly NSDL data. A few consecutive months of net buying, not just slower selling, would be the real signal.
The rupee needs to stabilise. If it finds a floor, foreign investors stop losing money purely on the currency leg of their India trade. Watch the rupee against the dollar and the RBI’s reserves position.
Valuations have already done a lot of the repair work. The Nifty 500’s forward price-to-earnings ratio has come down from 22 times to around 18 times, while earnings per share still grew about 14 per cent in fiscal 2026. Watch whether that earnings growth holds through the next two or three quarters.
The IPO pipeline needs to be digested, not just delayed. Jio Platforms and the NSE listing, alongside a broader pipeline estimated near 50 billion dollars for the year, are still ahead. Watch subscription levels and listing day performance on the large IPOs specifically.
SIP flows need to stay resilient, but this one needs closer scrutiny than it usually gets. SIP inflows have held above Rs 31,000 crore for five straight months through June 2026, and that headline number looks reassuringly stable. But AMFI’s own account-level data tells a different story underneath it: the SIP stoppage ratio, the rate at which existing SIP accounts are discontinued or mature relative to new ones started, crossed 100 per cent in both March and April 2026, meaning more SIP accounts closed than opened in those two months even as the rupee inflow number stayed strong. The money has held up so far because larger and longer-running accounts have more than offset the churn. That will not necessarily continue. Watch the SIP stoppage ratio and active account count from AMFI, not just the monthly rupee figure, since account-level cracks tend to show up well before the headline inflow number does.
Two outside factors are worth tracking even though India cannot control them: where crude oil prices settle, given India’s direct exposure through its import bill, and whether the global AI investment cycle broadens beyond hardware and chips into software services and digital infrastructure, an area where India has genuine strengths.
India does not need a miracle to catch up. It needs FII selling to ease, the rupee to steady, large IPOs to be absorbed without drama, and SIP flows, including the account base underneath them, to keep holding the fort long enough for cheaper valuations and healthy earnings growth to do their normal work. None of those are guaranteed, and some depend on decisions taken well outside India, in Washington, Tehran, and global boardrooms deciding where AI capital goes next. But unlike the GDP number, which is already strong and cannot do much more for the market on its own, these are the specific, trackable signals that will actually tell you whether the gap between India’s economy and India’s market is closing.
