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India could emerge as a major beneficiary of a global shift in investment away from artificial intelligence (AI) stocks, as concerns grow over heavy spending by US technology companies and declining returns on investment, according to a report by global brokerage firm Jefferies.
In its latest GREED & fear investment strategy report, Jefferies said, "In emerging markets which GREED & fear knows more about, the obvious market to benefit from the reverse AI trade has been India." The report noted that growing concerns over the sustainability of the AI investment boom are encouraging global fund managers to explore investment opportunities outside the technology sector. It stated, "From an investment standpoint, the now widespread view that the AI thematic has peaked is leading to a growing desire to look at non-AI trades on the part of portfolio managers." According to Jefferies, foreign investors have already returned to Indian equities, purchasing a net USD 7.2 billion worth of shares over three weeks, including a record USD 5.2 billion in the week ended November 6. This follows substantial foreign selling, with net outflows of USD 32.4 billion since the beginning of 2026 and USD 51.2 billion since the beginning of 2025, measured over the respective periods. The brokerage also highlighted India's relatively attractive stock market valuations and stronger-than-expected economic recovery. It said, "The other point about India is that valuations, relative to history, remain comparatively modest while the cyclical recovery in the economy this year has been better than expected." The report noted that the Nifty and Nifty MidCap 100 indices were trading at 18.4 times and 23.1 times their expected earnings over the next year, respectively. Jefferies also pointed to signs of a recovery in private-sector investment, supported by rising machinery imports. Machinery imports more than doubled from USD 29 billion in FY21 to USD 62 billion in FY26 and reached USD 67 billion in the 12 months ending September 2026. Meanwhile, domestic mutual fund investments continue to provide support to Indian equities. According to the report, equity mutual fund inflows stood at Rs 350 billion in October and totalled Rs 3.9 trillion during the first ten months of 2026. Jefferies said, "India remains the most dynamic capital market in the world after the US," although rising equity supply has limited gains in benchmark indices. The brokerage's assessment comes amid growing concerns about the returns generated by large US technology companies from their massive AI investments. According to Jefferies, the median forecast return on invested capital for four major US technology companies has declined from 21.7 per cent to 16.8 per cent for 2027, even as capital spending is expected to increase. The report suggests that these concerns could encourage further diversification into markets such as India, supported by improving domestic investment activity and continued mutual fund inflows. (ANI)
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