South Korea's equity market has now surpassed India to become the world's sixth-largest, driven by a rally in semiconductor giants. This shift, marked by South Korea's market capitalization reaching $5 trillion, has pushed India down to seventh place with a market value of $4.8 trillion.
At the heart of South Korea's surge are Samsung Electronics Co. and SK Hynix Inc., whose dominance in AI memory chips has propelled the Kospi's gains of over 100% in 2026. This growth has enabled South Korea to leapfrog countries like Canada, Germany, the UK, and France. However, the rally has been heavily reliant on the memory cycle, with the real challenge being the sustainability of this re-rating through corporate governance reform.
India's market, on the other hand, has been impacted by a weakening rupee, record foreign outflows, and a lack of large companies tied to the AI infrastructure boom. Global funds have withdrawn nearly $24 billion from Indian equities this year, redirecting capital towards East Asia's technology hubs. Taiwan, benefiting from a 49% rally in Taiwan Semiconductor Manufacturing Co., has also overtaken India in market rankings.
“The continued large FPI outflows from Indian equity markets reflect the steady deterioration of relative returns amid continued compression of relative earnings growth expectations.”
Sanjeev Prasad, Kotak Securities
India's benchmark index is down more than 8%, heading for its first annual decline in a decade. Its weight in the MSCI Emerging Markets Index has dropped to about 12% from 19% last year. According to Kotak Securities' Sanjeev Prasad, India's limited exposure to the AI and semiconductor cycle remains a concern for foreign investors.
Despite these challenges, Morgan Stanley maintains a positive outlook for Indian equities, citing improving corporate earnings, a supportive policy environment, and strong domestic inflows. The brokerage expects India's investment-to-GDP ratio to rise to 37.5% over the next five years, providing a strong foundation for economic growth.
Background
This development reflects a broader trend where investors are increasingly favoring economies with direct exposure to the AI and semiconductor supply chain. The shift in rankings underscores the growing importance of technology-driven sectors in global markets.
Looking ahead, the focus will be on whether India can leverage its long-term growth potential to regain its position in the global equity market rankings. Key areas to watch include corporate earnings growth, policy reforms, and India's ability to tap into new opportunities in AI and data centers.
