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India is emerging as a key beneficiary of the global artificial intelligence (AI) investment cycle, but in a manner distinct from hardware and semiconductor-led markets, according to a recent outlook by Jefferies.
The brokerage describes India as a "reverse AI trade", arguing that the country stands to gain primarily through productivity enhancement, cost arbitrage and services-led adoption rather than capital-intensive AI infrastructure spending. Jefferies noted that while AI-related capital expenditure is heavily concentrated in the United States and parts of Northeast Asia, India's exposure is skewed towards downstream usage. This positions Indian corporates to benefit from AI-driven efficiency gains without bearing the burden of high upfront investment. The report highlighted that India's IT services sector, in particular, is well placed to monetise enterprise AI adoption globally, given its scale, client access and experience in managing technology transitions. The brokerage pointed out that India's large pool of skilled, English-speaking engineers enables rapid integration of generative AI tools into existing business processes. This is expected to support margin expansion over the medium term, even as near-term revenue growth remains sensitive to global demand conditions. Jefferies added that AI-led automation is likely to reduce incremental hiring intensity, improving operating leverage across major Indian IT firms. Beyond IT services, Jefferies flagged broader macro benefits for India from AI diffusion. Increased productivity, especially in services and white-collar functions, could help offset demographic pressures and sustain trend GDP growth. Unlike manufacturing-heavy economies, India's growth model allows it to absorb AI as a deflationary and efficiency-enhancing force rather than a disruptive shock to employment. On valuations, Jefferies remains relatively constructive on Indian equities compared to other emerging markets. The report noted that while India trades at a premium, this is justified by superior earnings visibility, political stability and a strong domestic demand backdrop. AI adoption is seen as an incremental positive rather than a speculative driver, reducing the risk of bubble-like behaviour observed in parts of the global AI supply chain. The report also reiterated confidence in India's financial system, highlighting that balance sheets across banks and corporates remain healthy. This provides room for sustained capital formation, even as global liquidity conditions remain tight. Jefferies noted that India's reform momentum and digitisation drive further enhance its ability to absorb new technologies, including AI, at scale. In contrast to markets heavily dependent on AI hardware exports, India is insulated from potential volatility arising from overcapacity or sharp swings in semiconductor demand, the report says. Jefferies concluded that India represents a differentiated way to play the AI theme, not through chipmaking or hyperscale infrastructure, but through services, productivity gains and steady earnings compounding. As global investors reassess AI-related risks and returns, India's "reverse AI trade" positioning is expected to remain a key support for its equity market outlook. (ANI)
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