India's stock market is attracting renewed attention as a global sell-off in artificial intelligence shares pushes investors to consider alternatives. Foreign investors have held relatively small allocations to Indian equities for nearly two years, deterred by expensive valuations, weak earnings growth and a shortage of domestic AI technology leaders. Some strategists now see that limited AI exposure as an advantage.
The Nifty 50 has risen nearly 9% over the past month, outpacing markets with substantial AI exposure in the United States, Japan, South Korea and Taiwan. Indian benchmark indexes traded higher on Friday, November 6, while major Asian markets followed Wall Street lower. Japan's Nikkei 225 and Taiwan's Taiex entered bear markets, South Korea's Kospi slipped further into bear territory, and the Nasdaq Composite moved into a correction overnight.
Rajiv Batra, JPMorgan's head of Asia and co-head of global emerging markets equity strategy, told CNBC that foreign long-only investors could generate roughly $115 billion in potential net inflows if they brought their Indian equity allocations back to neutral. He cited lower global oil prices, declining U.S. Treasury yields, recovering corporate earnings and investors reducing their AI positions as factors supporting India.
Indian benchmarks have little exposure to AI hardware, unlike the heavily concentrated indexes in South Korea and Taiwan. Financial services, consumption, energy, industrials and other services instead account for their focus. Goldman Sachs strategist Timothy Moe told CNBC's "Squawk Box Asia" that India and Australia could outperform relatively because of their lower AI exposure, with India's domestic demand providing an additional advantage. Anand Rathi Wealth joint chief executive Feroze Azeez also highlighted India's market size, liquidity and lower dependence on the AI cycle.
Foreign investment has begun to shift. After net sales exceeding $31 billion through October this year, foreign investors bought a net amount of more than $2.3 billion over the past four days, according to NSDL data. The change coincides with stronger September-quarter results. JPMorgan data show listed Indian companies' earnings growth tracking above 20%, while consensus earnings per share forecasts rose over the past month by 0.5% for 2026 and 0.6% for 2027.
Valuations nevertheless remain a concern. India's main benchmarks are still down for the year despite their recent rally, but Indian shares continue to command higher valuations than other emerging markets. In a Monday report, Bernstein rejected the argument that India represents a hedge against AI, saying the country is neither an AI beneficiary nor an opposing trade.
Bernstein put India's rolling 12-month forward price-to-earnings ratio at 18.6 times, compared with 9.3 times for China and 7.9 times for Brazil. India also traded above the valuations of South Korea and Taiwan. Marcellus Investment Managers founder and chief investment officer Saurabh Mukherjea told CNBC that cheaper, easier AI hedges exist, while acknowledging strong Indian earnings growth over two quarters and decade-low valuations for some quality large companies.
Batra argued that India's premium reflects durable earnings and domestically driven growth, noting an average valuation multiple of 1.4 times that of emerging markets since 2007. Earnings weakness had weighed on Indian stocks since late 2024, but performance has improved over the past two quarters.
Templeton Global Investments portfolio manager Hari Shyamsunder said expensive crude, rupee weakness and faster-growing opportunities elsewhere had reduced India's appeal. He noted that Nifty's forward valuation is now below its 10-year average and that MSCI India's October forward multiple was its lowest since 2020. Sustained earnings growth over coming quarters, he said, would be necessary to attract foreign capital.
