India stocks draw hedge interest as AI sell-off reshapes global flows

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India stocks draw hedge interest

Highlights

JPMorgan estimates potential net foreign inflows of about $115 billion into Indian equities if global investors return to neutral positioning as AI trade unwinds.
Nifty 50 gained nearly 9% over the last month, outperforming AI-heavy markets like the U.S., Japan, South Korea, and Taiwan amid shifting capital and robust domestic earnings.
Foreign investors reversed from net sellers of over $31 billion year-to-date to net buyers with $2.3 billion inflows in four days, as Indian listed companies show earnings growth above 20% and forward EPS estimates rise.

Foreign inflow case builds as AI trade unwinds

As reported by CNBC, strategists at major global banks say India is emerging as a potential destination for capital rotating out of crowded AI-related positions, helped by its limited exposure to AI hardware stocks and improving domestic fundamentals.

Rajiv Batra, head of Asia and co-head of global emerging markets equity strategy at JPMorgan, told CNBC that foreign long-only investors have been underweight India for nearly two years because of high valuations, softer earnings growth and the lack of local AI champions. He said a move back to neutral positioning in Indian equities could translate into potential net inflows of about $115 billion.

Batra said falling global oil prices, lower U.S. Treasury yields, a recovery in Indian corporate earnings and the unwinding of the global AI trade are aligning in India's favor. Over the last month, the Nifty 50 has gained nearly 9%, outperforming markets with heavier AI exposure including the U.S., Japan, South Korea and Taiwan, which have come under pressure as investors sell technology names.

Timothy Moe, chief Asia-Pacific equity strategist and co-head of Asia macro research at Goldman Sachs, said India has been viewed as an anti-AI trade because its economic fundamentals have held up better. He added that India and Australia, both less exposed to the AI trade, are likely to see relative outperformance, with India's domestic demand profile giving it an advantage.

Valuation debate shapes outlook for Indian equities

India's benchmark indexes differ from those in South Korea and Taiwan because they are more heavily weighted toward financial services, consumption, energy, industrials and other services businesses rather than AI hardware makers. Feroze Azeez, joint chief executive at Anand Rathi Wealth, said that mix makes India an attractive alternative for global investors seeking size, liquidity and lower dependence on the AI cycle.

Foreign investors, which were net sellers of more than $31 billion through October this year, have turned net buyers over the past four days, investing more than $2.3 billion, according to NSDL data. The improving mood also coincides with stronger September-quarter results, with JPMorgan data showing earnings growth for listed Indian companies tracking above 20%, while consensus earnings per share estimates have been revised up 0.5% for 2026 and 0.6% for 2027 over the past month.

Still, the bullish view is not universally shared. Bernstein said in a Monday report that India should not be seen as either an AI beneficiary or an anti-AI trade, arguing that valuations remain expensive, while Marcellus Investment Managers founder and chief investment officer Saurabh Mukherjea told CNBC there are easier and cheaper ways to hedge AI exposure than buying India.

India is trading at 18.6 times rolling 12-month forward earnings, above China's 9.3 times and Brazil's 7.9 times, and at a premium to AI-heavy markets such as South Korea and Taiwan. Even so, Batra said India has historically traded at an average 1.4 times premium to emerging markets since 2007 because of durable earnings and a domestically driven growth engine, while Templeton Global Investments' Hari Shyamsunder said the market's recent weakness tied to high crude prices, a weak rupee and more attractive high-growth options elsewhere is now starting to ease.

In our earlier article on the Reserve Bank of India’s rupee-defence operations, we detailed how the RBI deployed an estimated $75–$80 billion via spot intervention and swaps after launching special FX measures to stabilize the currency. We also noted that higher oil prices, rising U.S. Treasury yields and sustained foreign equity outflows were key sources of pressure, raising questions about how much room the central bank would have if the rupee came under renewed stress.

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