For months, investors touted Indian equities as a place to hide if the global artificial intelligence trade unravelled. This week, that thesis played out in dramatic fashion. As a selloff in AI stocks swept through markets around the world, Indian shares stood out as Asia's lone bright spot, heading for their biggest weekly gain in more than five years.
The NSE Nifty 50 Index rose on Friday, November 6, defying a selloff that left every other major Asian market in the red. The index climbed as much as 1.2 per cent during the session, a striking performance on a day when fear gripped trading floors from Tokyo to Seoul. By the end of the week, the Nifty had gained 8.6 per cent, registering its best week since 2021 and completing a remarkable reversal for a market valued at 5.3 trillion dollars.
The contrast with the rest of the region could hardly have been sharper. Japan's Nikkei slumped nearly 7 per cent on Friday, while South Korea's Kospi fell more than 9 per cent to slip below the 5,000 mark. In the United States, the Nasdaq plunged 5.5 per cent, recording its worst day in 19 months as 3 trillion dollars was wiped off the value of companies in the S and P 500 index.
The trigger was a 5.6 per cent fall in the Nasdaq, driven by concerns about a sharp slowdown in data centre spending.
The immediate cause of the rout was political. The Democratic Party's sweep of the United States midterm elections raised the prospect of tighter regulation of the artificial intelligence industry, and investors began to question whether the massive spending on computing infrastructure would generate sufficient returns.
The AI trade, which had powered global markets higher for much of the past two years, suddenly looked vulnerable, and funds rushed to reduce their exposure to the companies most closely tied to it.
India's relative lack of exposure to that trade, which had been a weakness, quickly turned into a blessing. For much of the past year, India's limited presence in the global AI supply chain had helped make its stocks among Asia's worst performers, as global funds headed for the exits in search of AI-linked returns elsewhere. Now, as the once high-flying trade unravels, that same characteristic has become an advantage.
Investors seeking markets that have been less exposed to the most crowded technology trades, and where valuations have become more reasonable after a period of underperformance, have found India an attractive destination.
Foreign investors are returning in force, helping to narrow the market's year-to-date losses. Overseas investors poured a net 1.9 billion dollars into local shares in the week through Wednesday, while provisional data for Thursday showed a net inflow of 1.6 billion dollars. Foreign institutional investors bought nearly 15,000 crore rupees of Indian equities on Thursday alone, their biggest single-day purchase in more than a year, according to provisional exchange data.
Net inflows have reached about 4 billion dollars in the past ten sessions.
"There is a very high possibility that the India market will outperform other Asia markets in the short term," said Charlie Hong, founder and chief investment officer at LOGOS Asset Management. He added, however, that the trend would sustain for the medium term only if earnings continued to recover.
Hong himself sold his shares in SK Hynix, Samsung Electronics, Intel and Lumentum Holdings last month and has since boosted his Indian holdings with shares of new-age technology companies, financial firms and contract drug manufacturers.
Other factors are reinforcing India's appeal. Falling crude oil prices have eased a key pressure point for an economy that imports most of its energy, and an improving earnings outlook has lifted the market's appeal. "AI or no AI, India's macro could look a lot better with lower oil prices," analysts at Kotak Securities wrote in a note.
The combination of cheaper oil and stronger corporate results has given investors a fundamental reason to buy, beyond the simple logic of rotation away from AI.
Uday Kotak, founder of Kotak Mahindra Bank, has also said India could benefit if the global AI investment boom unwinds. Kotak noted that the AI trade had made India look more like an "anti-AI" market over the past year, a description that has now become a badge of honour rather than a mark of failure.
Radhika Rao, senior economist at DBS, observed that regional equity plays relatively less exposed to the AI story appeared to be benefiting in the initial phase of reallocation, and noted that net foreign portfolio inflows of about 4 billion dollars in ten sessions, along with a stable rupee, had resulted in index gains in dollar terms.
The shift is part of a broader rethinking of Asia's investment landscape. The unravelling of the AI trade after the US midterm elections is forcing investors to rethink their Asia playbook, reviving demand for out-of-favour Chinese and Indian stocks as well as companies poised to benefit from easing inflation and trade tensions. Aberdeen Investments favours markets powered by stronger domestic growth, including India and Vietnam, and sees upside in Chinese technology firms.
Hedge fund Lotus Asset Management is long Hong Kong equity futures, while Allianz Global Investors is looking at healthcare and consumer companies.
"I expect investors to diversify more broadly and reduce their concentration in the AI trade," said Rajeev De Mello, global macro portfolio manager at Gama Asset Management. "This should be supportive of China and other markets where valuations are less demanding." India could also benefit, he added, although its dependence on imported energy remains a headwind, a caveat that applies even as falling oil prices ease the burden for now.
Manishi Raychaudhuri, chief executive officer of Emmer Capital Partners, said foreigners would likely continue to sell Asia's AI "picks and shovels" stocks, and observed that "India and China are the only two large liquid markets offering a considerable array of non-AI exposures."
The comment captured the scale of the opportunity: in a region where many of the biggest stocks, from Samsung Electronics and SK Hynix to Taiwan Semiconductor Manufacturing Company, are critical suppliers to the global AI build-out, India stands out for the breadth of its domestic economy.
The rotation is also reinforcing India's large-cap bias, as investors favour the biggest and most liquid names. Valuations, meanwhile, are far more reasonable after two years of market underperformance, while earnings have continued to compound. That combination, of fairer prices and growing profits, is precisely what value-conscious investors look for when a crowded trade begins to unwind.
Caution, however, remains the prevalent mood. The global selloff has been severe, and the question of whether the AI trade is experiencing a temporary correction or a more fundamental reassessment is far from settled. If spending on data centres recovers, or if regulatory fears prove overblown, money could flow back into the AI leaders just as quickly as it left.
India's outperformance, for now, rests on a combination of foreign inflows, cheaper oil and improving earnings. Whether it endures will depend on whether those supports hold, and on whether the earnings recovery that investors are counting on actually materialises.
For the moment, though, the story is clear. A market that spent much of the year on the sidelines of the great AI rally has found itself, in the space of a single week, at the centre of the global rotation. India's stocks have gone from being Asia's laggards to its brightest spot, and the "anti-AI" trade, once a source of frustration, has become the week's defining investment theme.
(Reporting based on Bloomberg and Business Standard.)