According to CLSA, the current AI boom may be nearing its end, potentially benefiting India as investors shift away from frothy markets. CLSA's equity strategist predicts that concerns over returns on investments within the AI sector could trigger a sell-off within a year. This shift in investment strategy could lead to a reallocation of funds from markets like Taiwan and Korea towards India, which is perceived to have more attractive valuations.

Several factors contribute to India's appeal in this scenario. Compared to its North Asian counterparts, India's market boasts strong domestic flows and resilient macro fundamentals. With roughly 85% of the market now held by local investors who are less sensitive to price-to-earnings metrics, India exhibits stability. Moreover, India's fiscal discipline, controlled leverage, and credit-driven growth position it as a fundamentally strong market amidst global tech exuberance.

Global strategist Chris Wood also anticipates a positive impact on India's economy should AI trends reverse. While the IT services sector is currently experiencing a dip in revenue streams, overall profit growth for a sample of Indian companies has accelerated, driven by sectors like automobiles, cement, capital goods, and oil and gas. This diversified growth, coupled with a deep and valuation-agnostic domestic investor base, makes India a reliable relative outperformer as AI exuberance fades.

CLSA remains modestly overweight on India at 15%, with the possibility of increasing to 25% as positions in Korea and Taiwan unwind. While foreign investors have focused on valuation, domestic inflows and structural growth are the most important forces driving Indian equities. The real risk for India is not foreign investor selling but a slowdown in domestic savings. Furthermore, India is entering a rate-easing cycle, supported by lower-than-expected inflation.

However, other reports offer a slightly different perspective. HSBC described India as the world's "anti-AI" market, characterized by restraint rather than exuberance. They suggest that global investors are turning to technology-heavy peers like Korea and Taiwan due to the wave of AI spending. Despite this, CLSA points to signs that India's manufacturing and infrastructure are quietly accelerating, with liquidity flowing into the real economy rather than speculative AI bets. This could make India's growth more durable if the global tech trade cools.