Indian equities have recorded a significant downturn in the first half of 2026, positioning them as the third-largest losers globally. The benchmark Nifty index has fallen by 9% year-to-date, making it one of only three major global markets, alongside Indonesia and Hong Kong, to be in the red as H1 2026 draws to a close.
Global Market Declines: Indonesia and Hong Kong Lead Losses
The Jakarta Composite, Indonesia's primary stock index, holds the unfortunate distinction of being the worst performer worldwide, plummeting 33.30% so far this year. Investor confidence in Indonesia was severely impacted by a near-erasure of its trade surplus in April, driven by surging imported oil and gas prices outpacing export gains. Concerns over a potential downgrade to the country's credit rating due to a widening fiscal deficit further roiled the market, exacerbated by Indonesia's heavy reliance on imported refined petroleum and crude oil.
Hong Kong's Hang Seng index follows as the second-biggest loser, shedding nearly 14% this year. The index recently hit a one-year low, falling below the critical 23,000 mark. Heavyweight tech stocks have largely driven this decline. Alibaba Group Holding shares have crashed 40% in 2026, partly due to accusations from US AI firm Anthropic regarding illicit extraction of capabilities from its Claude AI model. Tencent Holdings Ltd also contributed significantly to the market's woes, with its stock down 34% amid investor anxieties over reducing margins from massive AI investments, slowing domestic revenue growth, and heightened competition.
What's Behind India's Equity Slide?
The Indian market's substantial hit stems primarily from aggressive selling by Foreign Institutional Investors (FIIs). In the first six months of 2026, FIIs offloaded equities worth Rs 2.2 lakh crore, significantly surpassing the total outflows of Rs 1.6 lakh crore seen throughout the entirety of 2025. This sell-off has been triggered by several interconnected global factors:
- Higher US Treasury Yields: Rising yields in the United States have made dollar-denominated assets more attractive, drawing capital away from emerging markets like India.
- Tighter Global Interest Rates: A general tightening of monetary policy globally has reduced liquidity and increased the cost of capital, impacting investor sentiment.
- AI-Led Disruption Concerns: Panic selling in Indian IT stocks has been observed, as these companies derive over 50% of their revenue from exports. The rapid expansion of artificial intelligence has shifted global investment flows towards economies with robust semiconductor ecosystems, such as Taiwan and South Korea, which have attracted a larger share of global capital during this AI-led investment cycle, leaving India with comparatively less attention.
- Geopolitical Tensions: Escalating conflicts in West Asia, particularly involving the US and Iran, pushed Brent crude prices above $90 per barrel. Higher oil prices disproportionately affect India, increasing its import bill, fueling inflationary pressures, widening the current Account Deficit, and squeezing profit margins for oil-dependent industries.
These combined domestic and international pressures have created a challenging environment for Indian equities, leading to their prominent position among global market underperformers in the first half of 2026.