India falls behind Taiwan in market rankings—but which market is better positioned to handle risk?

India has fallen to the 6th position in terms of market capitalization behind Taiwan. As reported by Bloomberg on May 26, Taiwan’s market capitalization stands at $4.95 trillion, slightly ahead of India’s market capitalization of $4.92 trillion.

While this has raised concerns among retail investors in India, you may be surprised to know which market is actually more sustainable.

So, let’s understand in detail how much returns both the markets gave over the years, how different the Taiwan and are, and whether Indian investors worry as India slips to the 6th ranking.

Comparison of returns generated by the Indian and Taiwan markets

As we look at the broader performance of the Taiwan Stock Exchange Capitalization Weighted Stock Index and India’s , the Indian market appears to have underperformed.

So, if you had invested ₹1 lakh in India’s Nifty 50 one year ago, your investment value would have fallen to ₹94,820. However, the same ₹1 lakh invested in Taiwan’s TAIEX would have grown to around ₹2,04,410 during the same period.

Even over the last five years, ₹1 lakh invested in the Nifty 50 has grown to ₹1.53 lakh, whereas the same investment in Taiwan’s market would have risen to ₹2.59 lakh.

Clearly, the Taiwan market has significantly outperformed the Indian market in terms of returns.

But which market is better positioned to handle risk?

Chairman Tuhin Kanta Pandey recently mentioned that, “India is a very, very diversified market. In Taiwan, there are concentrated stocks, there are very few.”

Commenting on the Taiwan market concentration, Vaibhav Porwal, Co-founder of Dezerv, highlighted that, “Indices once designed as diversified gateways to developing-world consumption and GDP growth have, over time, drifted into concentrated thematic vehicles. The MSCI EM Index now reads largely as a technology proxy, and within it, Taiwan functions as a near-pure AI play. TSMC alone accounts for roughly 42% of their benchmark index (TAIEX), and the broader market is tethered to the global semiconductor capex cycle.”

This means that if you invest ₹1 lakh in this index, nearly 42% of the money gets allocated to TSMC alone, which means around ₹42,000 is invested in a single company. This highlights the high concentration risk within the index, where the performance of one company can heavily influence total returns for investors.

He further cautioned investors about the risks of a highly concentrated index, “themes are not inherently dangerous, but their narratives become most seductive precisely when diversification is at its thinnest.”

How diversified the Indian market is?

If you invest ₹1 lakh in the Nifty 50 index, around 10.73% of the money gets allocated to HDFC Bank based on the index weightage. This means that only ₹10,730 is invested in a single company, while the remaining amount is distributed across multiple stocks, providing relatively balanced risk exposure.

According to Porwal, “India is not without concentration of its own. Financial services carry 35.27% of the Nifty 50, a meaningful sectoral tilt. But this concentration is of a different order from Taiwan’s single-stock dependence.

India’s real advantage lies in its connection to real economic growth rather than a single technological narrative, and the current cycle is structurally different: supported by domestic inflows that buffer foreign capital flight, by manufacturing diversification, and by the continued expansion of digital infrastructure. The residual 65% of the Nifty 50 is distributed across consumption, IT services, energy, capital goods, healthcare, autos, materials, telecom, and utilities. Reliance, HDFC Bank, and the top-weighted names sit in the 7-11% range individually, not in the 40%+ range. No single stock dominates the index.

Beneath the headline numbers lies the deeper advantage: a vibrant mid and small-cap universe of hundreds of companies between ₹3,000 crore and ₹30,000 crore in market capitalisation, with institutional coverage and meaningful float. Taiwan’s equivalent ecosystem exists but is permanently in the shadow of the semiconductor complex, where capital, talent, and analytical attention concentrate.”

Why is global capital chasing AI and semiconductor markets and should India worry?

Porwal explained that global fund flows are currently being driven by the rapid expansion of AI infrastructure and semiconductor supply chains.

“Global capital flow has been heavily driven by massive demand for AI infrastructure and semiconductor supply chains. These flows depend on global technology liquidity conditions and the specific demand for data center expansion. This has dramatically boosted the weights of tech-heavy economies like Taiwan and South Korea in global emerging market benchmarks.

While the underlying trend is undoubtedly the global technological shift toward AI and hardware, the reallocation of capital away from India was not a slow, natural transition. This capital flight is also heavily catalyzed by geopolitical risks, trade/tariff uncertainties, and a domestic earnings slowdown that made India’s high starting valuations unsustainable for foreign capital,” he said.

What should Indian retail investors take away from this?

Despite the temporary shift in rankings, experts believe India’s growth story and market structure continue to be its biggest strengths.

For long-term investors, Porwal believes this remains India’s biggest advantage. As he points out, “For investors seeking to compound through multiple cycles without depending on any one industry to keep working, India offers the more forgiving structure. Concentrated thematic plays, by design, are fragile.”

Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.