As fatigue over the artificial intelligence (AI) investment boom grows, India's stock market, where AI beneficiary stocks have a smaller weight, is drawing renewed attention as an alternative destination.
According to Bloomberg on the 6th (local time), the Nifty 50, India's benchmark stock index, posted returns in June that outpaced the MSCI Emerging Markets Index. The performance gap between the two indexes widened to the most since November last year. The scale of foreign fund outflows was also the smallest in the past four months.
Bloomberg analyzed that "because AI-related names are scarce, India's market, which was sidelined in the first half of this year, is being reassessed as a 'safe haven' to avoid market volatility."
◇ As AI stocks whipsaw, eyes turn to India as a "safe haven"
Global equities in the first half of this year were led by AI-related stocks. In the United States, AI-related corporations including Nvidia drove the market, while in Asia, Korea and Taiwan, powered by the semiconductor industry, were strong. By contrast, India, which lacks marquee AI names, fell relatively out of investors' focus.
But the mood has been shifting. As concerns grow about the sustainability of the AI investment boom, investors have begun to rebalance their portfolios and are turning their attention back to India, where dependence on AI is lower.
Investors took note of India's lower volatility. In the first half, the Nifty 50 moved up or down more than 1% on 38 trading days, fewer than the MSCI Emerging Markets Index and the MSCI Asia Index (59 trading days each). By contrast, Korea, a key beneficiary market of the AI rally, was far more volatile, Bloomberg said. On the KOSPI, the daily move exceeded 1% on 79 trading days, about two-thirds of this year's sessions.
Maxence Bissot, chief investment officer (CIO) at Dubai-based investment firm Aqevium Capital, said, "The biggest reason India's market is calm is because it has been apart from the AI investment boom," adding, "Our firm is neutral on India's equities but uses them as an asset for portfolio diversification." He added, "In emerging markets, India serves as a hedge against AI investment."
◇ Global investment banks also take note… "India will become a differentiated investment destination"
India's macroeconomic backdrop is also improving. The rupee, which had weakened to a record low, has recently stabilized, and as tensions in the Middle East have eased, the uptrend in global oil prices has broken, reducing the burden on the refining and airline sectors. In a report released at the end of June, the Indian government said these shifts were easing inflationary pressures and improving the outlook for economic growth.
Sandeep Sabharwal, founder of Mumbai-based investment research firm Asksandipsabharwal.com, said, "With commodity prices falling, India's macro outlook has, in effect, changed overnight," adding, "With lower commodity prices, improved capital inflows, and a stable rate environment aligning, over the next few quarters there is a higher likelihood that earnings forecasts for corporations will be revised up rather than down."
Global investment banks are also positive on India. Morgan Stanley said in a report sent to clients last month that India has grown into a "much larger macro asset class." It also said that lower inflation volatility in recent years is supporting equity valuations and that India is establishing itself as a "defensive growth" market that weathers global shocks better than before.
Ben Powell, chief investment strategist for the Middle East and Asia-Pacific at BlackRock Investment Institute, said, "At the start of the year, India was hamstrung by three factors: high energy prices, high valuations, and limited AI exposure," adding, "But as those drags ease, investors can start looking for opportunities beyond AI-centric markets." He added, "This shift could put India back in the spotlight as a differentiated investment destination in emerging markets."