Anti-AI Trade Helps Indian Stocks Outperform Asian Peers Amid Global Selloff

India’s AI-Light Market Finds Shelter as Global Risk Appetite Shifts

A retreat from artificial-intelligence shares is redirecting capital towards India, but sustained outperformance will depend on earnings and oil.

A relative advantage as the AI trade unwinds

The Nifty 50 rose on Friday even as every other major Asian market was in the red, putting Indian shares on course for their biggest weekly gain in more than five years. The move marks a sharp change in how investors are viewing India’s comparatively limited exposure to the artificial-intelligence trade.

That limited exposure had recently been a disadvantage. As global funds favoured AI-linked markets, Indian equities lagged and overseas investors pulled money out. Now, concerns about tighter regulation of AI following a Democratic sweep in the US midterm elections have helped reverse that dynamic. The same market composition that weighed on India during the AI rally is offering relative shelter as investors trim risk elsewhere.

This is an argument for relative performance, not proof that Indian equities are insulated from a global selloff. A rotation into India can support prices while investors reassess crowded trades, but it does not by itself resolve the market’s domestic earnings and currency challenges.

Foreign flows and a firmer rupee reinforce the shift

Overseas investors bought a net $1.9 billion of local shares through Wednesday this week, while provisional data showed a further $1.6 billion net inflow on Thursday. Short positions in NSE index futures also fell by more than 100,000 contracts during the week. Together, the figures point to both fresh buying and a reduction in bearish bets.

The change in flows has coincided with a stronger rupee. The currency climbed as much as 0.4% to 94.0675 per dollar, its strongest level since April, and the dollar-rupee rate moved below its 200-day moving average for the first time since 2025. A firmer currency may improve sentiment towards local assets, although one week of inflows does not establish a durable reversal in foreign investment.

Oil and earnings are central to whether gains last

Lower oil prices are another part of the improving backdrop. For an economy and market sensitive to energy costs, cheaper oil can ease pressure on the broader macroeconomic picture and add to the appeal of Indian assets. That support remains conditional: analysts have warned that a renewed escalation of the West Asia conflict could unsettle the more favourable outlook for the rupee.

Corporate results offer a more direct test of whether the market can sustain its relative strength. Citigroup said profit growth among roughly two-thirds of BSE 100 companies that had reported results was the fastest in at least five quarters and exceeded estimates. Better earnings would help validate higher investor interest; if the recovery falters, the recent inflows could prove more dependent on global portfolio rotation than on improving fundamentals.

The risks are visible in the broader record: Indian shares remain on track for their first annual losses in 11 years, foreign outflows are still at a record for the year, and earnings growth continues to lag peers in North Asia. The rupee, despite its recent rise, is also among Asia’s weaker currencies. The latest rally therefore improves the near-term picture without erasing the reasons investors had been cautious.

Key Highlights

• The Nifty 50 advanced against a broad Asian market decline and was headed for its strongest weekly gain in more than five years.
• Foreign investors recorded net share purchases of $1.9 billion through Wednesday, with provisional data showing another $1.6 billion inflow on Thursday.
• Short positions in NSE index futures fell by more than 100,000 contracts during the week.
• The rupee strengthened to 94.0675 per dollar, its highest level since April, as the dollar-rupee rate moved below its 200-day moving average.
• Lower oil and stronger reported profit growth are potential supports, while weak relative earnings growth and heavy year-to-date outflows remain concerns.

Investor Note: India’s relative resilience may attract attention while investors reduce AI exposure, but a lasting recovery will require continued earnings improvement and a supportive oil and currency backdrop. Treat the recent rally as a shift in sentiment, not confirmation that the market’s longer-term risks have passed.