GREED & fear report: India may no longer be the hottest emerging market trade as global investors chase the artificial intelligence-led rally in Korea and Taiwan, but Jefferies strategist Christopher Wood believes India remains structurally attractive thanks to strong domestic participation and resilient midcap performance.
In his latest GREED & fear report titled “Metamorphosis”, Wood explained how India has managed to avoid becoming irrelevant to global investors despite massive foreign outflows and benchmark weight reductions in emerging market indices. The report highlighted that domestic mutual fund inflows, SIP contributions and pension money are increasingly acting as a cushion for Indian equities even as global funds shift towards semiconductor-heavy markets benefiting from the AI boom.
“If India has been out of favour as the reverse AI trade, at least it has not been reduced to complete benchmark irrelevance for emerging market investors, which is the real risk now facing Asean markets,” Wood said in the report.
Why global investors are moving money out of India
The Jefferies report said the global AI boom has dramatically reshaped emerging market allocations, with investors aggressively buying semiconductor-linked markets such as Korea and Taiwan. According to Wood, this trend has significantly altered benchmark weightings in the MSCI Emerging Markets Index.
India’s weighting in the MSCI Emerging Markets Index has declined from 19.5% to 11.5% since the beginning of last year. In contrast, Korea’s weighting increased from 9% to 20.6%, while Taiwan’s share climbed from 19.7% to 25%.
The report noted that foreign investors have already sold a net US$21.1 billion worth of Indian equities so far in 2026, surpassing last year’s record outflow of US$18.8 billion. According to Jefferies, the selling pressure is largely linked to the AI-driven semiconductor trade dominating global markets.
“Samsung and Hynix are forecast to earn profits totalling W452tn (US$307bn) this year, three times the total forecast profits of US$102bn for India’s Nifty 50 universe,” Wood noted.
The report also highlighted how AI-related capex is now driving economic growth in both the US and Korea. In the United States, AI-linked investments contributed 43% to real GDP growth during the first quarter of 2026, while Korea’s semiconductor exports and related investments accounted for nearly 55% of the country’s quarterly GDP growth.
According to Jefferies, the AI “picks and shovels” trade has become so dominant that emerging market benchmarks are increasingly concentrated in a handful of technology stocks. TSMC, Samsung Electronics and SK Hynix now account for 26.9% of the MSCI Emerging Markets Index.
Why Jefferies still likes Indian midcaps
Despite the foreign selling pressure, Jefferies said Indian midcap stocks continue to remain one of the most attractive segments within the domestic market. The report noted that the Nifty MidCap 100 Index has rallied 19.2% from its April 2 low and recently touched a fresh record high. Since the beginning of 2023, the index has gained nearly 97%, significantly outperforming the Nifty 50’s 34% rise during the same period.
“This mid-cap segment remains the most interesting part of the Indian market to GREED & fear, though the recent rally means the stocks are looking relatively expensive again,” Wood said.
Jefferies acknowledged that valuations in the midcap segment have become expensive, with the Nifty MidCap 100 trading at 28.3 times 12-month forward earnings compared with 18.8 times for the Nifty 50. However, the brokerage believes the premium is partly justified by stronger earnings growth expectations.
The report estimated that Nifty MidCap 100 earnings per share could grow 13% in the current fiscal year and 22% next year, reflecting stronger growth momentum than large-cap benchmarks.
Domestic flows becoming India’s strongest market support
Jefferies also highlighted the growing importance of domestic money in supporting Indian equities amid continued foreign selling. According to the report, domestic equity mutual fund inflows surged to ₹500 billion in March, the highest level in eight months. Of this, ₹321 billion came through SIP contributions, reflecting continued retail participation in equities.
“Mutual fund inflows totaled US$13.4bn in 1Q26 while there was a further US$1.7bn/month flowing from the National Pension Scheme into equities in the first quarter,” Wood stated.
The report added that pension flows from the National Pension Scheme are becoming an increasingly important source of long-term liquidity for Indian equities. At the same time, supply pressures have eased as monthly equity issuance, including IPOs and block deals, slowed sharply during the first four months of 2026.
Overall, Jefferies believes that while India may temporarily remain overshadowed by the global AI and semiconductor rally, strong domestic inflows, rising SIP culture and resilient midcap earnings continue to provide long-term structural support to Indian equities.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
