Over the last couple of years, global equity markets have increasingly been dominated by the AI story. A disproportionate amount of global capital has moved towards a relatively small number of technology and semiconductor companies, particularly in the US, Taiwan and South Korea. India, which does not have the same direct exposure to this AI boom, has consequently received less attention from global investors.
Chris Wood of Jefferies makes an interesting point in his recent Greed & Fear note. He says, “It is reasonably clear that for India to become a prime point of focus again for emerging market equity investors, the AI story has to blow up.” Perhaps it does not have to “blow up”. Even some moderation in the extraordinary enthusiasm surrounding AI could cause global investors to look again at other growth markets. And when they do, India should be difficult to ignore.
What is important for us is that while global investor attention has moved elsewhere, the underlying Indian economic story has remained quite strong. Bank credit is growing strongly and corporate lending has accelerated, which could be an early indication of the long-awaited revival in private-sector capital expenditure. Lending to smaller businesses is also growing well. Economic growth remains healthy and corporate earnings growth is expected to improve further over the next year.
There are, of course, risks. Oil remains particularly important for India, global interest rates remain elevated and geopolitical developments can create periods of volatility. We should also recognise that valuations are not inexpensive everywhere, particularly in parts of the mid- and small-cap market. But valuations in several parts of the market have become considerably more reasonable after the correction and prolonged consolidation. This is happening at a time when the economic and earnings outlook is improving—a much healthier combination for a long-term investor than when valuations were high and earnings needed to catch up.
There is another interesting aspect to the present situation. Just three AI-related companies—TSMC, Samsung Electronics and SK Hynix—now represent around 29% of the MSCI Emerging Markets Index, while the whole of India represents only around 11%. This tells us something about how concentrated global investor attention has become. Such flows can remain powerful for quite some time, and we should not try to predict exactly when they will reverse. Markets eventually return to earnings, growth and valuations, and for India those fundamentals remain encouraging.
At the same time, describing India simply as an “anti-AI” market may miss an important emerging trend. India itself is trying to participate more meaningfully in the AI and semiconductor ecosystem. Government initiatives to develop semiconductor manufacturing are intended to build domestic capabilities in an area where India has historically had limited presence.
More importantly, India may participate in the AI opportunity in a somewhat different way. AI requires enormous supporting infrastructure—data centres, electricity generation, transmission equipment, cooling systems, electronics and specialised materials—and India already has a substantial number of companies operating in these areas. Goldman Sachs recently identified a basket of 42 Indian “AI Enablers” across these segments. Interestingly, while the broader Indian market has been weak during 2026, this basket has performed exceptionally strongly. Parts of the AI investment cycle are therefore already finding their way into Indian businesses and market valuations.
This gives India an interesting position. If the extraordinary concentration of global capital in a handful of AI stocks moderates, India could benefit as investors rediscover economies with strong domestic growth. At the same time, if AI investment continues to expand, a growing group of Indian companies could participate by providing the power, grid, electronics, data-centre and industrial infrastructure that AI requires. Importantly, many of these businesses are also beneficiaries of India’s broader infrastructure and capital-expenditure cycle and are therefore not dependent on AI alone.
Our view therefore remains unchanged. Money meant for long-term goals should continue to remain invested in Indian equities. Market corrections and periods when India is temporarily out of favour with foreign investors are part of equity investing; they are not, by themselves, reasons to alter a long-term investment plan. In fact, when the economic trajectory remains intact and valuations become more reasonable, such periods can gradually create opportunities.
We continue to believe that India remains one of the more compelling long-term structural growth stories. Rather than trying to time the movement of global capital between AI, emerging markets and India, our approach should remain much simpler: stay invested, maintain the appropriate asset allocation, and allow India’s economic growth and corporate earnings to compound over time.
Regards,
Dr. Sanjiv Mehta
MD, Finance Doctor
