AI gold rush meets reality - Kotak says India could be 'anti-AI' winner

Recent fall in AI stocks and global markets may or may not be the AI bubble's end.

As global investors debate whether the artificial intelligence (AI) rally has peaked, Kotak Institutional Equities has delivered a timely reality-check — and an interesting twist for Indian investors. In its November 2025 strategy note, Kotak argued that while AI has triggered a dramatic surge in global tech stock valuations, the math supporting these expectations looks increasingly stretched. And in contrast, India — which has no major AI plays — is emerging as a surprising “anti-AI” safety trade.

 

AI boom — but who pays?

 

Kotak notes that AI giants' market caps imply revenue and profit pools that may simply not be feasible, especially if automation eats into jobs and income. The report highlights a paradox: consumers are also workers, and if AI-driven automation hurts employment, the ability for masses to pay for AI services shrinks.

 

 

For instance, OpenAI alone is backed by $1–1.5 trillion in committed investments, requiring roughly $100–150 billion in annual returns at a 10% cash return on capital. For perspective, OpenAI may need 800 million to 1 billion paying users at $20 per month to make numbers work — a stretch given affordability constraints.  "A simple back-of-the-envelope calculation of OpenAI, which is central to the AI theme, with its US$1-1.5 tn of committed investments, shows the mind-boggling implied revenue and profit pools of AI players. A 10% CRoCI on US$1-1.5 tn of investment would imply US$100-150 bn of cash return (annually). OpenAI could achieve US$200-250 bn of annual revenues if 800 mn- 1 bn users were to pay US$20 per month fees. At present, OpenAI has around 40 mn paying subscribers out of its 800 mn subscribers. It expects to reach US$100 bn of revenues by 2027. We would note that there are several such competing AI services; the world has around 8 bn people and many may not require or may not be able to pay the US$20 monthly fee for any AI service," noted the report.

 

AI stocks have already shown volatility. The Bloomberg AI Index has corrected 4% from recent peaks, even after a sharp rally of 34% over the past three months, signaling investor nerves around sustainability of the boom.

 

India — underperformer for a reason, or opportunity?

 

While global stocks rode the AI mania, India lagged:

 

MSCI India is up 6% YTD vs 30% for MSCI EM and 17% for MSCI World

 

Kotak attributes this to:

 

• High valuations across sectors
• Earnings downgrades in the last 12–15 months (though stabilizing now)

 

Lack of pure AI plays

 

In other words, India's underperformance isn’t a glitch — it's a valuation catch-up phase plus no AI hype premium.

 

But this gap may soon narrow: Kotak expects Nifty earnings to grow 10% in FY2026 and 17% in FY2027. The index currently trades at 23.2× FY26 and 19.9× FY27 P/E, expensive but supported by earnings recovery.

 

What this means for investors

 India is the stability trade in a volatile tech-led world

 

Markets heavy on AI — US, Taiwan, Japan, Korea — have seen explosive moves. India’s lack of exposure shields it from a potential AI bubble burst.

 

For conservative equity portfolios, India acts as a defensive, non-AI hedge.

 

 Earnings cycle turning positive again

 

Despite valuation concerns, earnings outlook has improved:

 

10% earnings growth (FY26)

17% (FY27)

 

This strengthens the investment case for long-term domestic investors.

 

Sector positioning matters more than market timing

 

Kotak flags consumption stocks as expensive, while banks (especially mid & small lenders) and NBFCs trade at fair/attractive valuations.

 

Winners to watch:

 

Private banks

 

PSU banks improving balance sheets

 

Select NBFCs

 

Capital goods and infrastructure plays

 

 Areas of caution:

 

Premium consumption names

 

Stocks pricing in aggressive growth without earnings support

 

 

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd