India stocks pitched as AI hedge as global tech sell-off deepens
Foreign investors are returning to Indian equities as the Nifty 50 outperforms AI-heavy markets, though some analysts question whether India is a true hedge.
At a glance
- India's Nifty 50 gained nearly 9% over the past month, outperforming global markets with heavy AI exposure.
- JPMorgan says foreign investors neutralizing their underweight could bring about $115 billion in net inflows to India.
- Bernstein disagrees, saying India is neither an AI beneficiary nor an anti-AI trade and its valuations remain expensive.
India's benchmark Nifty 50 has climbed nearly 9% over the past month, emerging as a potential refuge for investors fleeing a sharp sell-off in global artificial intelligence stocks, according to CNBC.
On Friday, Indian indexes traded higher even as major Asian markets followed a Wall Street decline overnight. Japan's Nikkei 225 and Taiwan's Taiex entered bear market territory, South Korea's Kospi deepened its bear market, and the tech-heavy Nasdaq Composite slipped into correction, CNBC reported.
Foreign investors, who had been underweight on India for nearly two years, appear to be returning. After net selling more than $31 billion through October, they became net buyers over the past four days, investing over $2.3 billion, according to NSDL data cited by CNBC.
"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," Rajiv Batra, head of Asia and co-head of global emerging markets equity strategy at JPMorgan, told CNBC. Batra said falling global oil prices, lower U.S. Treasury yields, a recovery in Indian corporate earnings and an unwinding of the global AI trade all favor India. He called India an "AI hedge."
Why India stands out
Unlike South Korea and Taiwan, whose indexes are concentrated in AI hardware stocks, India's benchmarks have limited exposure to that segment. They are instead weighted toward financial services, consumption, energy, industrials and other services, CNBC reported.
Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, told CNBC's "Squawk Box Asia" that India and Australia are less exposed to the AI trade and may see relative outperformance, with India's domestic demand story giving it an edge. Feroze Azeez, joint chief executive at Anand Rathi Wealth, said India's size, liquidity and lower dependence on the AI cycle make it an attractive alternative.
Earnings have also improved. JPMorgan data cited by CNBC shows earnings growth of listed Indian companies tracking above 20%, with consensus earnings per share estimates revised up 0.5% for 2026 and 0.6% for 2027 over the past month.
Valuations and dissent
Not everyone agrees. Bernstein said in a Monday report that India is neither an AI beneficiary nor an anti-AI trade, arguing its valuations remain expensive. India trades at a rolling 12-month forward price-to-earnings ratio of 18.6 times, above China's 9.3x and Brazil's 7.9x, and at a premium to AI-heavy South Korea and Taiwan.
"There are easier and cheaper ways to hedge AI than investing in India," Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers, told CNBC, though he noted India's recent earnings growth has been "stellar" and some quality large caps are at decade-low valuations.
Hari Shyamsunder, vice president and senior institutional portfolio manager of India equities at Templeton Global Investments, told CNBC that high crude prices, a weak rupee and better opportunities elsewhere had diluted India's near-term appeal. He said Nifty now trades below its 10-year average forward P/E, and MSCI India in October hit its lowest forward multiple since 2020. He added that foreign inflows would depend on sustained earnings growth over the next few quarters.
Source: CNBC.
Questions and answers
- Why is India being called an AI hedge?
- Investors are moving out of crowded AI trades, and India's benchmarks have little exposure to AI hardware stocks, instead focusing on financial services, consumption, energy and industrials, according to CNBC.
- How much money could flow into Indian stocks if foreign investors return?
- JPMorgan's Rajiv Batra told CNBC that if foreign long-only investors neutralize their underweight in Indian equities, it could translate into potential net inflows of around $115 billion.
- What risks could derail the India stock rally?
- Bernstein says India's valuations are expensive relative to other emerging markets, and Templeton's Hari Shyamsunder told CNBC that high crude prices, a weak rupee and better opportunities elsewhere could dilute India's appeal.
