From Nvidia to TSMC, world's chasing AI, India isn't - and that may pay off

While global markets are increasingly dominated by an AI-fuelled liquidity surge, India finds itself in an unusual but advantageous position: it is one of the few major markets not dependent on an AI boom. And that may become its biggest strength when the cycle turns.

 

Unlike the US—where giants such as Nvidia and the rest of the “Magnificent Seven” drive valuations—or Asia-Pacific peers like Taiwan’s TSMC and South Korea’s Samsung, India has very few pure-play AI stocks. The Nifty 50 and Sensex remain anchored in financials, consumer goods, infrastructure and manufacturing, sectors tied more to domestic demand than global tech cycles.

 

As per a report by Elara Capital, “This insulates India from AI-specific corrections as global AI stocks that have added trillions in market cap face bubble fears due to stretched valuations and uncertain earnings streams.”

 

 A detailed analysis of 15 years of EPFR data shows by Elara Capital shows  that since 2020, global fund flows have shifted from broad-based emerging-market (EM) participation to hyper-concentrated, tech-driven cycles centred almost entirely on the AI boom.

 

This insulation is becoming increasingly relevant as early cracks appear in the global AI trade.

 

 During the latest peak in November 2024, the US cornered an unprecedented 88.6% of all foreign equity inflows across major developed and emerging markets—nearly four times its historical average share of 23% across seven earlier peaks since 2010. This post-pandemic dominance reflects a fund-flow cycle increasingly tied to dollar liquidity, Fed policy, and AI-led technology leadership, said a note by Elara Capital.

 

Among EMs, China has mirrored this trend. In CY25, China captured 60.9% of emerging-market flows (ex-DM) compared to a long-term average of 43.9%, driven by a recovery in local macro fundamentals and surging investor appetite for its tech complex. Taiwan, home to the semiconductor giants powering the AI supply chain, has emerged as the biggest outlier: it garnered 15% of total EM flows this year versus an average of 12.4% in past cycles—despite the absence of equivalent economic fundamentals. India, meanwhile, has been crowded out, with its share collapsing to just 0.4% in the November 2024 peak against a long-term average of 6.3%.

 

The distortion is even sharper at a sector level. Information Technology—which includes global AI plays—captured a record 36.2% of peak sector flows in August 2025, the highest ever recorded. The Herfindahl-Hirschmann concentration score has surged to its most extreme level on record, signalling that investor positioning is now dangerously narrow. While this raises the probability of a sharp sector rotation when the AI trade cools, analysts believe a full unwinding is not imminent.   Only a handful of AI stocks show froth 

Even though the Bloomberg AI Index — which tracks 45 leading companies in cloud computing, semiconductors, and hardware focused on next-generation computing — has shown some fatigue over the past six trading sessions,

  Global AI stocks have seen some fatigue in November 2025 

  Some AI-focused stocks have seen some selling in past one month 

 

A close look at earnings data suggests that outside a few names—NVIDIA in the US and SMIC in China—there is not yet a dramatic mismatch between eight-quarter earnings CAGRs and stock-price performance. This froth is now beginning to show up in performance. The Bloomberg AI Index, which tracks 45 global AI-linked companies across cloud, semiconductors and next-gen hardware, has shown visible fatigue over the last six trading sessions. AI-heavy markets like China and Taiwan have already seen noticeable corrections over the past month, a sign that investors are becoming more cautious.

 

Yet, according to the report, a full-scale unwinding of the AI trade is unlikely in the near term.

 

Still, even a mild correction—say a 10–20% valuation drawdown—could spark sharp rotation away from overheated AI markets into under-owned, fundamentally strong regions. And India, by virtue of its low AI exposure and stable domestic-growth-led market structure, becomes a natural beneficiary.

 

Or as the report notes:

“As and when the AI valuations cool… Indian markets could be the preferred choice.”

 

For India, this skewed global capital cycle carries two implications.

 

First, the country’s current under-ownership is not a reflection of its fundamentals but simply a result of global capital chasing a narrow set of AI-heavy markets.

 

Second, whenever the AI trade cools—even with a modest 10–20% valuation correction—the rotation into under-owned markets and sectors could be meaningful. With India lacking large pure-play AI names, its equity market is insulated from AI-specific drawdowns; and with financials, consumer and infra forming the bulk of its benchmarks, India could emerge as a preferred destination once global sector concentration begins to unwind.

 

For investors, the implication is clear: while the world chases AI-led momentum, India is quietly setting up as the “anti-AI trade”—a defensive shelter now, and a rotation winner later.

 

What investors should note: 

• Global flows are the most concentrated in 15 years, driven by AI and US tech dominance.
• US (88.6%), China (60.9%) and Taiwan (15%) are absorbing nearly all the liquidity.
• India’s share has fallen to 0.4%, not due to fundamentals but due to an AI-driven global bias.
• IT sector flow share at 36.2% signals elevated concentration risk.
• Early signs of fatigue: Bloomberg AI Index is softening; Taiwan & China AI stocks have corrected.
• Rotation opportunity: When AI valuations cool 10–20%, capital could shift sharply into India.
• India is insulated from an AI correction because it lacks pure-play AI giants.
• Financials may lead India’s rebound, consistent with past FPI cycles.
• Bottom line: Don’t chase the AI froth. India is the classic “ignore now, reward later” trade.