A sharp rally in technology stocks powered by the global artificial intelligence (AI) boom has sparked a fresh rotation in the global leadership ranking as Taiwan trumped India to become the world’s fifth biggest market in terms of market capitalisation (m-cap).
According to Bloomberg data, Taiwan’s market cap climbed 3.5% to $4.95 trillion on Monday, beating the Indian stock market‘s valuation of $4.92 trillion.
The shift comes at a time when global equity markets are increasingly being driven by a narrow set of mega-cap technology companies. In Taiwan’s case, semiconductor major Taiwan Semiconductor Manufacturing Co. (TSMC) has emerged as the dominant force, while India has seen relative underperformance amid foreign investor outflows, currency weakness, earnings slowdown, oil shock and lack of AI-related trade.
AI boom drives Taiwan’s surge
Taiwan’s rise in global m-cap rankings has been largely influenced by the global AI supply chain trade, where it plays a critical role through semiconductor manufacturing. In 2026 so far, Taiwan’s TAIEX index has surged 48%.
TSMC, the world’s largest contract chipmaker, has been the primary beneficiary of surging demand for AI chips as the stock is up 43% on a year-to-date (YTD) basis.
The rally, however, has also led to an unusually high level of market concentration. “TSMC now accounts for 40-50% of Taiwan’s market cap; so the concentration risk is very high,” said Dr Vijay Kumar VK, Chief Investment Strategist, Geojit Financial Services.
According to a Bloomberg report, new regulations are also in TSMC’s favour. Taiwan’s financial regulator last month increased the limit for investment in a single stock by domestic funds to 25% from 10% earlier. However, the stock must have a weighting exceeding 10% in the Taiwan Stock Exchange. Currently, only TSMC meets the criterion.
According to market participants, such extreme concentration means that index performance is increasingly tied to the fortunes of a single company, amplifying both upside momentum and downside vulnerability.
Vijaykumar highlighted that South Korea, another major global market witnessing strong AI trade, has followed a similar trajectory. Semiconductor giants Samsung Electronics and SK Hynix together account for a significant share of the Kospi index.
India’s underperformance driven by FPI flows & macro headwinds
On the other hand, India’s decline in global market-cap rankings is a combination of multiple factors weighing on equity performance.
Harshal Dasani, Business Head at INVasset PMS, said that the reshuffle is less an India-specific breakdown and more a relative repricing of where global capital wants exposure. “When one concentrated theme is being priced aggressively, it can temporarily overtake a structurally stronger but more diversified market.”
Foreign institutional investor (FII) flows have remained volatile, with sustained selling pressure in secondary markets. NSDL data shows the highest-ever FII selling on a YTD basis of ₹227,602 crore. This is above a massive ₹166,286 crore already offloaded in 2025.
At the same time, currency depreciation and elevated crude oil prices have added to macroeconomic concerns, impacting sentiment.
“FIIs started profit booking when the Indian equity market hit lifetime highs. First, there was valuation concern, then selling in the secondary market while investing in the primary market, and later continued selling as the rupee started falling,” said G Chokkalingam, Founder and Chief Investment Officer, Equinomics Research.
He added that these factors unfolded sequentially, creating sustained pressure on sentiment. “Going forward, FIIs can continue selling if the rupee remains weak. But the key linkage remains oil prices, which affect FII outflows, FDI slowdown, widening trade deficit, and overall sentiment,” the market veteran added.
The Indian benchmark Nifty 50 has lost over 8% this year so far, putting it on track for the first annual decline in 10 years.
Will India’s position continue to weaken?
The threat to India’s position in the world equity ranking persists in the near term, but analysts believe it is not a long-term concern.
They see it as part of a cyclical rotation within global equity markets, where leadership shifts depending on macro conditions and sectoral trends.
For now, risk-reward globally is favouring markets directly tied to the AI capex cycle, said Dasani. However, no theme lasts forever.
“There will be a time when this AI trade will run out of steam or even reverse. No theme runs forever,” said Dr Vijaykumar. He added that markets have historically seen extended periods of overperformance in dominant themes, followed by sharp corrections or long consolidation phases.
He cited historical parallels, noting that even during past technology cycles, such as the dot-com boom, markets continued to rally well beyond early warnings of overheating before eventually correcting.
India, he said, benefits from a more diversified equity base. “India has the advantage of having hundreds of good-quality stocks, unlike markets that are heavily concentrated,” he said.
What could drive a reversal in flows?
Market participants believe that a sustained reversal in foreign flows would depend on a combination of macro stabilisation and valuation comfort.
Geopolitical developments, particularly in the Middle East, remain an important variable influencing oil prices and, by extension, India’s macro stability.
“If the conflict resolves, oil could come back to around $80; it would be a one-stop solution for India, and then India could outperform Taiwan and South Korea comfortably,” said Chokkalingam.
In such a scenario, he expects India’s growth to return to around 7%, while these economies may not sustain that level because they are export-driven. “Economies dependent on US demand cannot grow at 7–8% sustainably. China also cannot maintain that growth rate due to its large base. India, on the other hand, has strong domestic demand and growth can return once external conditions improve,” he added.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
