The single biggest stock market trend in recent years has been the growth of AI, with the largest beneficiaries of the trend being US-listed tech companies such as Nvidia, but also producers of semiconductors and memory based in north Asian countries.
Investors with broad exposure to global equity indices are likely to have increased exposure to this theme as evidenced by the large weightings of US tech stocks on the benchmarks.1 This is beginning to cause concern for those who believe that the level of investment in this new technology may have gotten ahead of its ability to generate profits, potentially resulting in disappointment that could cause share prices to decline from their current elevated levels.
One way to potentially mitigate this risk is to consider portfolio realignment into assets that are less exposed to the bubble. The Indian equity market is seen by some investors as the “anti-AI trade”, as it contains relatively few listed companies with meaningful direct exposure to the trend compared to, say, the US, Taiwan or Korea. Crucially, being “anti-AI” in equity-market terms is not a comment on whether AI is transformative -- it’s a comment on valuation and concentration risk. If the AI leaders are priced for near-perfect monetisation, then markets with fewer direct AI winners can offer a cleaner hedge against disappointment.
Less exposed to AI spend
The Indian market doesn’t have much in the way of semiconductors or other AI plays; it is dominated by domestic-focused companies such as banks, telcos and consumer companies, as well as old-economy stocks such as industrials and energy, and the Indian economy is also less exposed to the AI investment boom than the US, where AI-related investment spending has accounted for a large share of the growth in the economy over the past year.
However, “anti-AI” can be a misleading label if it is taken to imply weak adoption. India is rapidly becoming one of the world’s most important AI deployment markets - a huge, multilingual user base, widespread smartphone access and low-cost data are encouraging mass usage, while global AI providers and cloud firms are increasingly prioritising distribution in India - often through subsidised or bundled offers - to build reach at scale.
The bigger point for investors is that India can still benefit economically even if the most visible AI profits accrue elsewhere: foreign AI capex and expertise can spill over into local cloud and data-centre buildout, faster diffusion of productivity tools across services, and rising demand for implementation talent through IT services firms and global capability centres. In that sense, India may be less an “anti-AI” market than an “anti-AI-concentration” market - less tethered to a narrow set of expensive AI winners, while still participating in the second-order gains from adoption.
GDP and earnings growth
India can also offer some diversification benefits due to light investor positioning among international investors; India is one of the largest underweight positions for global emerging market funds. It fell out of favour in the second half of 2024, when investors rotated into a “China stimulus” trade, and its valuations have subsequently become cheaper as the market passed through a period of consolidation. Since then, we have seen Indian GDP forecasts tick up to around 7.5%2 (up from 6.5%), along with improving corporate earnings momentum. The missing factor has been sentiment, which was spoilt by negative headlines surrounding delays to the expected US-India trade deal late in the summer of 2025.
US trade deal
Before this tariff shock, foreign investors had begun to return to the Indian market; after it, outflows resumed. Consequently, we believe that the US-India trade deal announced on 2nd February may trigger a positive switch in foreign investor sentiment and, possibly, in flows, as the deal reduces the 50% tariff on Indian goods exports to the US to 18%. The positive language used by the US President in announcing the deal seems calculated to dispel geopolitical worries by affirming the continued strength of the US-India relationship.
Adding foreign inflows to the ~$67bn annual inflow of domestic savings to India’s stock market could be a catalyst for the market. India has traded at a well-deserved premium to other markets due to the superior visibility of its long term growth, in our view, and that premium had become stretched by the summer of 2024; since then, India’s stock market has lagged global peers, and relative valuations are now back to normalised levels.
While nowhere is likely to be immune from the short-term volatility that might ensue if the AI bubble were to pop, there are plenty of reasons to believe that India could hold up relatively better and ought to be less affected in terms of the fundamentals that ultimately determine the direction of stock prices over longer periods.
Footnotes
1Eight US tech stocks, the Magnificent Seven plus Broadcom, are the largest stocks by index weight on the MSCI World Index as at 31.12.25. https://www.msci.com/www/fact-sheet/msci-world-index/05830501
2Government press release. 07.01.2026 https://www.mospi.gov.in/uploads/latestreleasesfiles/1767782498513-GDP%20Press%20Note%20on%20FAE%202025-26.pdf
Strategy specific risks
- Currency (FX) Risk - The Strategy can be exposed to different currencies and movements in foreign exchange rates can cause the value of investments to fall as well as rise.
- Pricing Risk - Price movements in financial assets mean the value of assets can fall as well as rise, with this risk typically amplified in more volatile market conditions.
- Emerging Markets Risk - Emerging markets are potentially associated with higher levels of political risk and lower levels of legal protection relative to developed markets. These attributes may negatively impact asset prices.
- Market Concentration Risk (Geographical Region/Country) - Investing in a particular country or geographic region can cause the value of this investment to rise or fall more relative to investments whose focus is spread more globally in nature.
- Derivative risk - the Strategy may use derivatives to reduce costs and/or the overall risk of the Strategy (this is also known as Efficient Portfolio Management or "EPM"). Derivatives involve a level of risk, however, for EPM they should not increase the overall riskiness of the Strategy.
- Liquidity Risk - Some investments may be hard to value or sell at a desired time and price. In extreme circumstances this may affect the Strategy's ability to meet redemption requests upon demand.
- Liquidity Risk (general) - During difficult market conditions there may not be enough investors to buy and sell certain investments. This may have an impact on the value of the Strategy.
- Counterparty Default Risk - The risk of losses due to the default of a counterparty on a derivatives contract or a custodian that is safeguarding the Strategy's assets.
For a more detailed explanation of risk factors, please refer to the "Risk Factors" section of the KIDs (Key information documents).
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