India could emerge as a beneficiary if the global frenzy over artificial intelligence stocks cools, RBI Governor Sanjay Malhotra said. A sharp correction in AI-linked valuations across developed markets could unsettle investors and trigger volatility, but it may also encourage international capital to look for opportunities in markets such as India.
RBI Governor highlighted that while Indian share markets have adjusted downward from recent highs, the pullback has remained controlled and smooth.
“The AI investment cycle has been a major support for global markets,” Moneycontrol quoted Malhotra saying at the Kautilya Economic Conclave in New Delhi. However, any slowdown in AI investment or earnings could “trigger a sharp repricing of financial assets, especially in the AI value chain,” Malhotra said.
Key Financial Vulnerabilities and India’s Economic Standing
Although rapid AI development has bolstered international stock markets, Malhotra warned that rising technology adoption introduces new systemic vulnerabilities. He identified overextended AI valuations among five primary global financial risks, beside soaring public debt, shadow banking leverage, private credit expansion, and cyber risks, while noting that none currently pose an immediate collapse threat. India is confronting this uncertain global backdrop from a firm foundation, anchored by strong macroeconomic metrics and robust balance sheets across banking and non-banking sectors.
“As for corrections in AI-related valuations, if they were to happen in advanced countries… it may have a positive impact in terms of capital inflows,” the RBI Governor said.
Contagion Risks and the Regulatory Balancing Act
Despite exposure to global shocks via energy prices, international monetary policies, and capital movements, the domestic market displays strong resilience. Malhotra pointed out that disparate cybersecurity defenses worldwide mean a breach in one region can trigger widespread spillover effects, suggesting the next financial disruption may not start within traditional banking. Consequently, policymakers must trace technological dependencies and cross-border contagion paths while avoiding over-regulation that stifles innovation, ensuring financial networks can absorb stress without harming broader economic growth.
“It is not that I see any imminent signs of stress,” Malhotra said. “But we need to remind ourselves that we need to remain alert to these risks.”
“Strong macroeconomic fundamentals and the resilience of the financial system provide confidence in our ability to withstand these lingering shocks,” Malhotra said.
“With the development of sophisticated AI tools… the most immediate concern is regarding cyber risk,” he added.
