Global AI sell-off spurs investor interest in Indian stocks

Foreign investors, who have previously avoided the Indian market due to concerns about high valuations, slower earnings growth, and the absence of prominent local AI technology companies, may soon reverse course.

“If these foreign long only investor groups were to neutralize their underweight in Indian equities, this could translate into potential net inflows of around $115 billion,” stated Rajiv Batra, head of Asia and co-head of global emerging markets equity strategy at JPMorgan.

Several positive factors are contributing to this shift, including declining global oil prices, lower U.S. Treasury yields, a recovery in earnings for Indian companies, and the unwinding of the global AI investment trend.

“India has emerged as an ‘AI hedge’ for portfolios trimming or diversifying out of crowded AI trades,” Batra added.

The Nifty 50, India’s main stock index, has risen approximately 9% in the last month, surpassing the performance of global markets heavily invested in AI, including the U.S., Japan, South Korea, and Taiwan, which are experiencing significant losses.

While major Asian markets followed Wall Street’s decline on Friday, Indian indexes moved upward, highlighting a growing divergence. The Nikkei 225 in Japan and the Taiex in Taiwan entered bear market territory, while South Korea’s Kospi deepened its bear market and the Nasdaq Composite experienced a correction.

“India has been dubbed sort of the anti-AI trade, and our view there is that the underlying economic fundamentals have actually been better,” explained Timothy Moe, chief Asia-Pacific equity strategist and co-head of Asia macro research at Goldman Sachs. He noted that markets like India and Australia, with less exposure to the AI trade, are likely to see relative gains, emphasizing India’s strong domestic demand.