India's absence from the AI mega-cap trade is drawing defensive capital from overheated markets in Korea and Taiwan, flipping a year-long underperformance into a 10-percentage-point lead over emerging-market peers.
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India Nifty 50 beats EM peers by 10% as AI trade reverses
The Nifty 50 rose about 1 percent in the past month, outperforming the MSCI Emerging Markets Index by more than 10 percentage points as global investors rotated out of AI-exposed markets. The shift marks a sharp reversal from the first half of 2026, when India's lack of large AI-related technology companies was seen as a liability and foreign investors pulled about 2.7 trillion rupees ($32 billion) from Indian equities.
"India's biggest advantage right now is that it sits outside the AI trade entirely, making it a natural diversifier in emerging-market portfolios," Maxence Visseau, chief investment officer at Arkevium Capital, said.
The Nifty 50 recorded only 38 trading sessions with a daily move exceeding 1 percent in the first half of 2026, compared with 59 for the MSCI Emerging Markets Index and 79 for South Korea's KOSPI. Foreign institutional investors bought more than 150 billion rupees ($2 billion) of Indian equities in the first two weeks of July, their strongest sustained buying streak this year after seven consecutive months of net selling. Goldman Sachs said in its July strategy note that foreign selling in Indian equities "is likely over," though it cautioned the inflows reflect positioning adjustments after record outflows rather than a fresh conviction cycle.
The rotation signals a reassessment of India's role in global portfolios as the AI trade that lifted Korea and Taiwan cools. Whether the inflows become sustained depends on first-quarter earnings — led by Reliance Industries and private banks — and whether crude oil prices stay near $70 a barrel, a level that eases India's import bill for the more than 90 percent of its oil and gas needs that come from abroad.
Korea's AI-Led Volatility Spurs Reallocation
The flip side of India's gains is visible in South Korea, where leveraged bets on AI darlings Samsung Electronics and SK Hynix have warped the KOSPI into one of the world's most volatile markets. More than half of all KOSPI circuit breakers in history have occurred in the past six months alone. The index has lost 20 percent in July, erasing part of a 62 percent rally for the year, as single-stock leveraged ETFs amplified both the upswing and the downturn.
Assets in a Hong Kong-listed twice-levered SK Hynix fund surged more than 20-fold since the start of the year to $7.78 billion, making it the largest such fund globally. South Korea's financial regulator this week moved to curb excesses, tripling the minimum cash balance required to trade single-stock leveraged ETFs to 30 million won ($20,300) starting Aug. 5.
Coronation Asset Management, which oversees about $47 billion, cut its combined SK Hynix and TSMC holdings to 5 percent from 8 percent in the second quarter while raising its India allocation to nearly 12 percent, according to the firm's disclosures.
Valuations Remain the Key Hurdle
Despite the inflows, India remains one of the world's most expensive equity markets. The median stock in the Nifty 500 index trades at about 33 times earnings, and more than 30 percent of NSE 500 constituents carry price-to-earnings ratios above 50, according to Bloomberg Intelligence. That compares with single-digit multiples for Samsung Electronics and SK Hynix, whose P/E ratios have fallen below 5 as earnings have surged faster than share prices.
Weak monsoon rainfall and the absence of changes to foreign capital gains tax policy continue to temper enthusiasm. Avendus Finance Chief Executive Nilesh Dhedhi said the "most difficult phase" for Indian markets has passed, but the current environment is more likely to slow the pace of outflows than reverse the roughly $29 billion in net foreign selling this year.
This article is for informational purposes only and does not constitute investment advice.
