Key facts
- Foreign investors have shifted from net sellers to net buyers of Indian equities.
- A correction in AI-related stock valuations is drawing investors to India.
- India's limited exposure to AI companies is seen as an advantage for diversification.
- Robust economic growth and improving corporate earnings support the positive outlook on Indian equities.
- Analysts warn that rising oil prices could pose a risk to foreign investment in India.
Foreign investors are increasingly allocating capital to Indian equities, a shift attributed to a cooling-off in the artificial intelligence (AI) trade and India's relatively stable economic performance. After significant outflows totaling $26.7 billion in the first half of 2026, foreign institutional investors (FIIs) have begun net purchasing Indian stocks, with over $3.8 billion in purchases recorded.
This rotation is occurring as AI-focused markets such as Taiwan, South Korea, and Japan have experienced substantial corrections. For instance, South Korea's Kospi has fallen over 38% from its peak, Japan's Nikkei over 14%, and Taiwan around 16%. In contrast, India's benchmark indices have remained relatively flat during the same period.
Analysts suggest that India's limited exposure to the AI boom, unlike its regional peers heavily invested in semiconductor and AI hardware companies, makes it an attractive diversification play. N. Aruna Giri, Founder and CEO of TrustLine Holdings, noted that the divergence in performance and capital flows became evident around late June, coinciding with the peak of the AI trade. TrustLine data indicates that FIIs have bought over $2 billion in Indian equities since June 22, while simultaneously withdrawing nearly $30 billion from Taiwan, $25 billion from South Korea, and over $7 billion from Japan.
Several global asset managers, including William Blair Investment Management, Amundi, HSBC, UBS, Goldman Sachs, and Bernstein, have expressed a more constructive view on Indian equities. They see India as a logical destination for investors seeking to trim exposure to North Asian and US technology stocks. The narrative around India is evolving, with some describing it as Asia's emerging "anti-AI trade" not due to a rejection of AI, but because its stock market is less reliant on AI-linked companies, offering a natural hedge and diversification benefit.
Beyond the AI trade dynamics, India's improving domestic fundamentals, including robust economic growth, rising corporate earnings expectations, and supportive policy measures for the rupee, are also contributing to its attractiveness. However, analysts caution that a significant spike in oil prices could disrupt this positive sentiment and delay a broader revival in India's stock markets.