India stages a comeback as AI trade gets crowded
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Live Events as a Reliable and Trusted News Source Addas a Reliable and Trusted News Source Add Now! (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel India is re-emerging as a portfolio diversifier just as global investors crowd back into artificial intelligence-linked markets, creating an early test of whether the year's dominant equity trade can continue delivering returns.Inflows into the AI ecosystem strengthened for a second week after a recent correction, according to a report by Elara Capital. Global emerging market funds attracted $4 billion, the most in six months, as the EM index rebounded from its 200-day moving average.South Korea drew another $3.5 billion of foreign inflows, while Taiwan received $1.8 billion, its strongest intake in 23 weeks. Global industrial funds, another route into the broader AI ecosystem, recorded $1.3 billion of inflows, the highest in seven weeks.Yet the renewed buying is occurring after the AI trade became increasingly crowded and returns began to moderate, Elara said.An important aspect to monitor is the timing of these allocations, the report said. The correction has yet to trigger redemptions, leaving the durability of positions accumulated during the recent period of investor enthusiasm as the next major risk.That concentration is beginning to strengthen the case for India, where persistent fund outflows are slowing and relative performance is improving.India-focused long-only funds have faced redemptions since July 2025, with much of the pressure this year reflecting capital being redirected towards AI-heavy markets such as Taiwan and South Korea, according to Elara.
While the funds are still losing money, the pace of withdrawals has moderated in recent weeks.Since mid-June, India-focused long-only funds have outperformed their emerging-market peers by about 10%, their strongest stretch of relative performance since February to April 2025, Elara said.The shift aligns with HSBC's view that India can serve as an anti-AI diversifier as sharp swings in technology-exposed markets encourage foreign investors to broaden their portfolios.HSBC strategists Prerna Garg, Herald van der Linde and Yogesh Aggarwal said in a report that AI-rotation outflows from India have largely played out. More than 80% of active global emerging-market funds remain underweight on the country, according to the bank.A move by those funds back to a neutral position could generate about $25 billion of inflows, HSBC estimated. Foreign investors had already purchased $3.6 billion of Indian equities since mid-June, when the market began outperforming the broader region.Indian equities rose about 6% over that period, HSBC said. South Korea's market, by comparison, has been roughly four times more volatile than India's this year, reinforcing India's relative appeal as global investors reassess exposure to the AI rally.The flow picture remains uneven. Elara's data show that dedicated India long-only vehicles continue to face redemptions, while HSBC points to improving foreign portfolio investment and the potential for large underweight positions to be reduced.
The BriefWire