Global investment trends are rapidly changing as artificial intelligence reshapes financial markets, and India is increasingly feeling the pressure. The country’s stock market is now at risk of slipping out of the world’s top 5 markets for the first time in nearly 3 years as investors shift toward AI-driven economies like Taiwan and South Korea.
The shift is not only linked to slowing earnings growth or expensive valuations. Global investors are now prioritising sectors tied to AI infrastructure, semiconductor manufacturing and advanced computing — areas where India currently has limited market representation.
While India continues to offer digital scale, talent and strong consumer demand, many of its largest listed companies are still heavily dependent on domestic consumption and IT services rather than AI-led innovation.
“This isn’t a dip you buy,” said Gary Dugan, chief executive of Global CIO Office. “What markets haven’t fully priced yet is that this isn’t an earnings miss story in India, it’s a terminal value story. The assumptions about where these businesses are in 10 years have to change.”
India’s weight in the MSCI Emerging Markets Index has reportedly dropped to nearly 12% from 19% last year. According to M&G Investments, almost two-thirds of the investment shift away from India over the past 12 to 18 months has been linked to AI-focused positioning.
Foreign investors have also sharply reduced their holdings in Indian equities, pushing ownership levels to a 14-year low, according to calculations by Goldman Sachs.
India’s market capitalisation had touched a record $5.73 trillion in September 2024, but nearly $924 billion in value has since been wiped out. Foreign investors have reportedly pulled out $42 billion since the end of 2024.
Meanwhile, AI-linked markets such as Taiwan and South Korea have witnessed strong rallies, with benchmark indices rising 78% and 42% this year. In contrast, India’s benchmark index is down more than 9%.
Experts believe India now faces a critical transition point as AI infrastructure, computing power and technology ownership increasingly shape global growth.
The country’s IT services sector, led by firms such as Infosys and Tata Consultancy Services, is also facing pressure as generative AI tools automate coding, testing and back-office operations.
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