With the AI frenzy fading and India’s stock valuations falling back to their five-year average after underperforming global peers this year, India’s consumption-led economy is regaining investor interest.
Meanwhile, Global tech leaders Amazon and Microsoft have announced a fresh $52 billion investment in India over the coming years, largely focused on building AI infrastructure.
As concerns rise over a potential investment bubble in Artificial Intelligence (AI), global funds are shifting focus back to India as an alternative market. Investors aiming to reduce exposure to volatile, tech-heavy global equities are drawn to India’s relatively low dependence on AI and its strong consumer-driven economy.
With the risk increasing for AI-related investments, India draws fresh attention from global fund managers seeking to diversify equity portfolios in the year ahead.
Aberdeen Group Plc expects Indian equities to rebound next year, while Principal Asset Management Co. and Eastspring Investment view the market’s low correlation with AI trade as a buffer against global equities. Strategies at HSBC Holdings Plc and Jefferies Financial Group have expressed the same interest.
India can be a good diversifier for portfolios in 2026 as it has low correlations with other markets, and any pause in AI trade will see money flowing into India. Also, India is a strong domestic growth story and benefits from tax cuts, labor law reforms, domestic liquidity, supportive policies, and stabilization in corporate earnings.
Other local factors are also providing a strong backdrop for Indian equities. The central bank has slashed interest rates, the economy grew 8.2% in the latest quarter, and a trade deal with the US is likely to be signed soon.
While this provides investors with potential upside from the AI theme, it also ties returns more closely to the sector’s volatility and to policy shifts in Beijing.
Meanwhile, Indian equities are supported by strong domestic tailwinds. Recent interest rate cuts by the central bank, robust economic growth of 8.2% in the latest quarter, and the likelihood of an upcoming trade agreement with the US together create a favorable environment for the market.
By contrast, China’s equity market offers limited AI exposure through companies like Tencent and Alibaba, along with listed chipmakers such as Cambricon Technologies and Moore Threads. Those exposures give investors leverage to any AI-driven upside, but they also bind returns more closely to the sector’s inherent volatility and to policy swings in Beijing.