Broadening the lens: India’s alternative AI playbook

Please find below our latest thoughts on India: 

• April was another month marked by elevated global volatility, driven primarily by ongoing tensions in the Middle East and crude oil prices moving above US$100/bbl at various points.
• After correcting in March, Indian equities rebounded in April - but unevenly. The market saw multiple single-day moves exceeding 1% in both directions as sentiment shifted with each new headline. However, the broad trend was firmly positive.
• While geopolitical risks around the Iran conflict have created a backdrop of higher global energy and input costs, an important offset for markets has been the accelerating AI trade.
• Semiconductor-related stocks have once again led returns globally, with the highly concentrated AI infrastructure segment delivering particularly outsized performance.
• This matters to India for several reasons. First, India remains a net oil importer, and higher crude prices raise concerns around inflation dynamics, the current account balance, and pressure on corporate margins.
• Second, India has been characterised as an “anti-AI” trade, reflected in the underperformance of its large, listed IT services companies relative to more strongly-bid AI hardware and infrastructure names.
• With regards to the fallout from the Iran conflict, Indian policymakers have swiftly implemented fiscal policies to reduce excise duties on petrol and diesel in an effort to contain inflation and spare large adjustments to pump prices. Fertiliser subsidies have also been increased to support India’s large agricultural sector.
• At the same time, diversification of crude supplies - particularly from Russia, Africa, and the US - has helped reduce near-term reliance on West Asia and limit supply disruption risks.
• At its most recent meeting, the Reserve Bank of India left policy rates unchanged at 5.25%, signalling a continued wait-and-see approach as policymakers aim to balance currently benign inflation against potential upside risks from higher energy prices and supply chain interruptions.
• Maintaining policy stability should also help support the rupee, which has faced pressure from foreign investor outflows of approximately US$18 billion this year. Foreign ownership of the BSE 500 now stands at 17%, with the trough being around 13% during the Global Financial Crisis for reference.¹
• Meanwhile, local buying has been bullish, more than offsetting foreign outflows and lifting the MSCI India index by around 10% in April to date (USD). This reflects a consistently strong pattern of domestic buying.²
• Domestic equity inflows of roughly US$31 billion YTD have been largely delivered in the form of systematic investment plan (SIP) contributions into professionally managed mutual funds. These flows tend to be sticky in nature and help dampen overall market volatility.¹
• Moving to AI challenges, earnings season gathered pace in mid-April, with IT services stocks being the first to report. IT earnings were soft, as expected, given market concerns around AI-driven disruption. While the transition is not without challenges, we believe the sector remains materially misunderstood.
• Large-scale enterprise AI adoption inevitably requires integration, customisation, legacy system connections, and change management - areas where Indian IT services companies have long demonstrated global leadership.
• India does not possess deep AI hardware ecosystems spanning advanced chip design, fabrication, and packaging. There is also no single, listed stock that neatly serves as a proxy for India’s “AI trade.”
• However, focusing too narrowly on what India lacks risks overlooking what it does have: sustained investment in data centres, power infrastructure, fibre networks, and compute capacity coming from both domestic and international pools of capital. The most recent tally is north of US$400bn in listed and unlisted commitments.³
• India also has a large digital commerce segment deploying AI as a tool to innovate and drive returns. India is the second largest source of enterprise AI activity after the US, yet the shares are being priced as if AI is only a risk, rather than an opportunity.

• This is further reinforced by access to richly layered government data across a captive addressable market of 1.4 billion people - datasets that no foreign AI model can access, regardless of technological sophistication.
• Taken together, we think India’s AI trajectory appears far less challenged than current market pricing implies.
• Ideas are dispersed across sectors benefiting from AI infrastructure buildout, sectors using AI to gain market share, and sectors successfully implementing AI solutions. This creates a fertile hunting ground for stock pickers.
• While headwinds from geopolitics and AI disruption are genuine, we are increasingly encouraged by what lies ahead in India’s journey rather than overly concerned about what could derail it.

¹ JPMorgan, India Equity Strategy: Flows & Positioning in Mar’26 Q - FIIs meaningfully reduce their Financials exposure, as of 26 April 2026.
²   IDS GmbH, Allianz Global Investors, as of 27 March 2026.
³ Macquarie, as of 1 April 2026.

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