NEW DELHI : For nearly two years, global investors chased one theme above everything else: artificial intelligence.
Money poured into semiconductor makers, AI hardware companies and the markets that housed them. Taiwan, South Korea and Japan emerged as some of the biggest winners as investors rushed to back companies powering the AI boom.
Now, the first signs are emerging that the trade may be cooling.
Foreign institutional investors (FIIs), who pulled a record $29 billion out of Indian equities in the first half of 2026, have started returning. At the same time, AI-heavy Asian markets have witnessed sharp corrections, prompting global fund managers to ask whether capital is beginning to rotate towards markets like India.
FROM AI WINNERS TO INDIA
One of the biggest reasons India underperformed global peers over the past year was its limited exposure to the AI boom.
Unlike Taiwan and South Korea, India’s benchmark indices have very few semiconductor manufacturers or AI hardware companies. As investors chased AI-related stocks, money flowed into those markets while India saw sustained foreign selling.
But that dynamic appears to be changing.
N. ArunaGiri, Founder and CEO of TrustLine Holdings, said the divergence between AI-heavy markets and India has become increasingly visible since late June.
“Since the AI trade peaked around June 22, the performance divergence across Asian markets has been striking,” he said.
TrustLine’s analysis shows South Korea’s Kospi has fallen more than 38% from its peak, Japan’s Nikkei over 14%, Taiwan around 16% and China’s Shanghai Composite about 8%, while India’s benchmark indices have remained broadly flat over the same period.
“Though there has been a technical bounce in these markets from the lows, a broader cool-off in the AI trade is not ruled out, though it may not happen in a hurry,” ArunaGiri said.
THE MONEY IS BEGINNING TO MOVE
Price movements tell only part of the story.
The bigger signal may be coming from foreign capital flows.
According to TrustLine, FIIs have bought more than $2 billion worth of Indian equities since June 22. During the same period, foreign investors have withdrawn nearly $30 billion from Taiwan, $25 billion from South Korea and over $7 billion from Japan.
“The more compelling evidence lies in FII flows,” ArunaGiri said.
“Taken together, the market performance and flow data provide early evidence that global investors may already be rotating capital away from crowded AI trades towards relatively under-owned markets such as India.”
Independent market data also points in the same direction. Reuters reported that foreign investors bought more than $1.6 billion worth of Indian equities in July, marking a notable turnaround after selling roughly $29 billion in the first six months of the year.
WHY INDIA IS SUDDENLY ATTRACTIVE
The shift isn’t simply about investors abandoning AI.
It is also about finding the next destination for global capital.
Several global asset managers have recently turned more constructive on India.
William Blair Investment Management, which manages around $65 billion in assets, described India as the “obvious destination” for investors trimming exposure to North Asian and US technology stocks. Amundi has also said it remains constructive on India, while HSBC, UBS, Goldman Sachs and Bernstein have become more positive on Indian equities in recent weeks.
Reuters also recently described India as Asia’s emerging “anti-AI trade”—not because it is avoiding artificial intelligence, but because its stock market is less dependent on AI-linked companies than many of its regional peers.
ArunaGiri believes that is precisely India’s advantage.
“In many ways, India is increasingly emerging as a natural diversification play in a post-AI-trade environment,” he said.
NOT JUST AN AI STORY
India’s improving domestic fundamentals are also helping.
Economic growth has remained robust, corporate earnings expectations are improving and policy measures to support the rupee have strengthened investor confidence. Analysts say sectors such as financials, healthcare and industrials have become increasingly attractive relative to expensive AI-linked markets.
Jefferies’ Global Head of Equity Strategy Christopher Wood has argued that India’s record foreign selloff earlier this year was not a verdict on its fundamentals but collateral damage from the rush into AI-driven markets like Korea and Taiwan. He believes sustained FII inflows could return if the AI trade continues to cool.
TOO EARLY TO DECLARE THE AI TRADE OVER
Despite the recent shift, most market participants caution against declaring the AI boom over.
Technology remains one of the strongest long-term investment themes globally, and recent corrections could simply represent profit booking after an extraordinary rally.
ArunaGiri also stops short of calling it a definitive trend.
“While it is premature to conclude that a durable trend has been established, the directional change is encouraging,” he said.
“The AI trade may not be over, but the capital rotation away from the most crowded AI beneficiaries and towards markets like India seems to have begun.”
Whether that early rotation turns into a sustained wave of foreign inflows will depend on several factors, including corporate earnings, geopolitical developments in West Asia and the durability of the global AI investment cycle. But after spending much of the past two years on the sidelines of the AI boom, India is increasingly finding itself back on global investors’ radar.
