AI stocks have seen some selling lately, sparking speculation that investors are playing an anti-AI trade amid concerns that the sector is in bubble territory.
India’s limited participation in the global AI rally has been a key factor behind FPI selling and the underperformance of the Indian stock market over the past year.
The weight of semiconductor-heavy markets has increased significantly in the MSCI EM index, while that of India has decreased.
As Devarsh Vakil, Head of Prime Research at HDFC Securities, pointed out, India’s weighting in the MSCI EM index dropped significantly from its peak of 20 on 31 July 2024 to 11.9 on 30 April 2026. This represents an absolute decrease of 8.1 points, which equates to a 40.5% reduction from its 2024 level.
In contrast, Korea’s weight surged from 12.1 in July 2024 to 18.7 in April 2026. This marks an absolute increase of 6.6 points, resulting in a 54.55% percentage increase.
Taiwan experienced steady and substantial growth, climbing from 18.4 in July 2024 to 24.8 by April 2026. This reflects an absolute increase of 6.4 points, translating to a 34.78% percentage increase, Vakil said.
Can a reversal in the AI trade augur well for the Indian stock market and bring FPIs back? An even bigger question is whether the Indian market can reward investors amid rising macroeconomic risks stemming from geopolitical conflicts and a weak monsoon, which have clouded the earnings growth outlook.
Can an anti-AI trade benefit the Indian stock market?
Experts underscore that the AI trade may be entering a consolidation phase, with stretched valuations and capex fatigue beginning to weigh on the narrative. India, by contrast, offers a structural growth story uncorrelated to the AI capex cycle, driven by domestic consumption, financial deepening, and a manufacturing buildout that is still in early innings.
Vakil said if AI-linked stocks were to correct from current levels, the index weights of those countries would decline. India’s relative weight would rise in turn. Passive ETF investors, bound to track those shifting weights, would be compelled to reallocate, bringing fresh inflows into India.
Vakil highlighted that as global allocators reassess concentration risk in technology-linked emerging markets, India’s diversified earnings base and improving macro fundamentals make a compelling case for rotation.
“The rupee’s relative stability, a credible central bank, and a maturing capital market infrastructure further distinguish India from peers exposed to global trade volatility. With FII flows already showing early signs of re-engagement, the conditions for India’s sustained outperformance against Korea and Taiwan may be quietly falling into place,” said Vakil.
G Chokkalingam, the founder and head of research at Equinomics Research, believes periodic shocks will be there for AI stocks in foreign markets as meaningful returns to justify current valuations will take a much longer time.
India offers opportunities from many sectors which have a stable outlook and depend on the domestic demand theme.
Chokkalingam said FPIs will come back as oil will fall further, and therefore India’s external economic conditions will improve substantially.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, believes excessive volatility will continue in semiconductor stocks and markets like South Korea and Taiwan, which will be favourable to India.
“Sharp rallies will trigger profit booking, while sharp corrections will encourage buying. The profitability of these companies will continue to be excellent. However, concentration risks are high. This means high volatility will continue. This excessive volatility is favourable to India, which is growing at a steady pace,” said Vijayakumar.
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Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
