The Indian sharemarket is increasingly viewed by global fund managers as a crucial hedge against potential volatility in the artificial intelligence (AI) trade, despite its recent lagging performance compared to other tech-heavy indices. Much like Australia’s S&P/ASX 200, which is dominated by financials and resources, India’s stock market maintains a low exposure to the technology sector. This structural characteristic positions it to be less susceptible to a downturn should the AI trade experience a significant correction, unlike markets heavily invested in tech like those in Wall Street, Taiwan, Korea, and Japan. This sentiment was tested when Korea’s KOSPI index, laden with memory giants like SK Hynix and Samsung, saw a substantial drop earlier this year.
After two years of being underweight due to valuation and earnings concerns, foreign institutional investors have notably turned net buyers of Indian stocks. August recorded the largest monthly inflow in nearly two years, approximately $US3 billion ($4.2 billion), marking the second consecutive month of positive inflows. According to JPMorgan’s head of Asia and global emerging markets, Rajiv Batra, India emerges as a significant hedge when global markets are trimming or diversifying out of the AI story. This renewed interest is driven by India’s improving earnings, a stabilising currency, and a global quest for diversification, with investments primarily flowing into consumer services, including e-commerce and hotels, alongside metals, mining, and healthcare.
While the Nifty 50 has fallen about 6.4 per cent over the past 12 months, making it a global laggard alongside the Australian sharemarket, its low correlation to the AI sector is its appeal. Antipodes portfolio manager John Stavliotis, who holds a significant stake in Indian banking giant HDFC Bank, suggests India is an ideal hedge, but specifically for market events linked directly to the AI sector, such as a drop in capital expenditure by hyperscalers. HDFC Bank is an Indian financial services company and one of the largest private sector banks in India, offering a wide range of banking and financial products and services. Mugunthan Siva of India Avenue Investment Management also sees India’s structural growth story reinforcing renewed foreign participation and broad-based earnings growth. JPMorgan boss Jamie Dimon further underscored India’s potential, projecting its economy to triple within a decade.
