Global AI Boom Diverts Foreign Investments from Indian Equities to Tech-Heavy Markets

How the Global AI Trade Pulled Billions Away from Indian Equities

While global stock markets have soared on the back of the artificial intelligence (AI) boom, India has lagged behind, losing billions in foreign investment this year. As fund managers worldwide chase high returns in AI-linked markets such as Taiwan, South Korea, Japan, and the US, India is being viewed as an “anti-AI” market — one that doesn’t offer exposure to the world’s fastest-growing technology trend.

Foreign Institutional Investors (FIIs) have already pulled out nearly ₹2.5 lakh crore from Indian equities in 2025, marking one of the heaviest outflows in recent years. The shift underscores how the global AI rally has diverted liquidity from non-tech-heavy economies into those driving the next wave of innovation.

India Labeled an “Anti-AI” Market by Global Investors

According to Ridham Desai, Managing Director at Morgan Stanley India, global “tourist capital” — investors chasing short-term thematic returns — has been firmly focused on AI. “India does not really offer an AI trade,” he said at the CNBC-TV18 Global Leadership Summit.

Echoing this view, Neelkanth Mishra, Head of Global Research at Axis Capital, noted that the sentiment among foreign investors has turned negative. “They see India as an AI loser, while Taiwan and South Korea are AI winners because of companies like TSMC and Samsung, which directly benefit from the AI revolution,” Mishra said.

He added that global investors believe Indian IT firms and global capability centers (GCCs) might even suffer from the AI boom, as automation could reduce the demand for outsourcing and traditional IT services.

Also Read : Luxury Real Estate Demand Set to Rise as Tech IPO Boom Fuels Buying Spree

FIIs Rotate Out of India Amid Weak Market Sentiment

This perception has triggered a clear rotation of foreign capital from India into other emerging markets that have stronger AI exposure. As FIIs continue to sell, benchmark indices such as the Nifty 50 and Sensex have delivered muted returns.

Despite steady domestic inflows from retail investors, India’s overall equity performance has been subdued due to weak earnings growth and high valuations. In contrast, AI-driven markets have delivered double-digit returns, drawing in global liquidity that once favored India.

According to market data, FIIs sold nearly ₹2.5 lakh crore in the cash markets this year alone — a massive shift of funds towards AI-focused economies.

AI Boom Propels Global Markets to Record Highs

The global AI rally has supercharged equity performance across major economies. China’s AI companies have seen their combined market capitalization nearly double (96%) in a year, rising from $802 billion to $1.57 trillion.

South Korea isn’t far behind, with AI firms growing 94% year-on-year, led by semiconductor giants and data infrastructure providers. Taiwan’s AI market cap expanded 47%, while Japan posted a 63% surge.

In the US, home to leaders like Nvidia, Microsoft, and OpenAI, AI-linked companies added over 40% in value in the past year, reinforcing America’s dominance in the global tech landscape.

By comparison, the MSCI India Index has gained just 1% over the same period, while markets like Taiwan (+47%), South Korea (+50%), and China (+26%) have outperformed significantly.

India’s Valuations Stay High as AI Play Passes It By

On the emerging market front, investors have gravitated toward tech-heavy markets as India’s valuations remain expensive relative to earnings momentum. In the September quarter alone, FIIs poured a record $15 billion into Taiwanese equities — the highest quarterly inflow ever recorded.

“Positioning in South Korea is at its strongest in more than a decade,” said Desai, adding that the AI-led boom has created a new global order where capital prefers technological innovation over traditional consumption-driven growth stories.

While India boasts a robust domestic economy, it lacks direct beneficiaries of the AI trend — no chipmakers, GPU giants, or large-scale AI software developers comparable to those in the US or East Asia.

Is the Global AI Trade Losing Steam?

However, analysts are beginning to question whether the AI trade’s red-hot rally can sustain itself. The Nasdaq Composite recently slipped 3%, while the Bloomberg AI Index fell 4% last week — the first notable correction in months.

“If this trend persists without triggering panic, it could actually be healthy for markets,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “It would preempt a potential AI bubble and set the stage for more balanced global capital allocation.”

He added that FIIs, especially hedge funds that exited India to chase AI gains, might soon reverse the trade. As AI valuations peak, investors may look for non-AI opportunities in stable, consumption-driven economies like India.

Earnings Recovery Could Revive India’s Equity Story

Despite foreign outflows, optimism remains for India’s medium-term growth. The government’s continued focus on infrastructure, manufacturing incentives, and consumer demand could revive corporate earnings. Analysts project that FY27 may mark a strong recovery phase for Indian equities as profitability improves and valuations stabilize.

If global investors rotate out of overheated AI markets, India’s steady fundamentals could once again attract long-term capital. “India’s story is not over — it’s just being overshadowed temporarily by the AI narrative,” said Mishra.

Conclusion: India Awaits Its Next Big Theme

The global AI trade may have temporarily diverted funds away from Indian equities, but market experts believe this phase could be cyclical. As valuations in AI-heavy markets peak, India’s domestic strength, consumption-led growth, and improving earnings could bring FIIs back to Dalal Street.

For now, India’s “anti-AI” tag may keep it off the global radar — but as investors look beyond the AI frenzy, the world’s fifth-largest economy could soon regain its shine in the global equity landscape.

• Nifty 50
• Bank Nifty
• Sensex