India Could Emerge as ‘Reverse AI Trade’ as Global AI Boom Nears Inflection Point: Jefferies’ Chris Wood

India could become the primary beneficiary of a potential global unwind of the AI trade, according to the latest GREED & Fear report by Christopher Wood, Global Head of Equity Strategy at Jefferies.

In the March edition of the report, Wood argues that the AI-heavy investment cycle dominating global markets is approaching a critical inflection point. This could redirect international capital toward markets with stronger domestic growth drivers, including India. He suggests that once investors begin questioning the returns on massive AI capital expenditure, funds currently concentrated in semiconductor-driven markets such as Taiwan and South Korea may rotate into India. This would turn the country into a “Reverse AI trade.”

Over the past two years, global investors have aggressively poured money into AI infrastructure companies, especially semiconductor manufacturers and technology hardware firms. Markets with strong chip manufacturing ecosystems, including Taiwan and South Korea, have benefited disproportionately from this trend.

However, Wood cautions that the massive global spending cycle on AI, which is estimated at around $620 billion in capital expenditure by hyperscalers, could soon face investor scrutiny over its return on investment (ROI).

If confidence in AI spending weakens, capital may shift away from tech-heavy markets toward economies with stronger domestic consumption and earnings growth, such as India.

India Underperformed During the AI Boom

India’s equity markets underperformed global peers in 2025. Partly because the country lacks significant exposure to AI hardware manufacturing or semiconductor exports. As global investors focused heavily on chipmakers and AI infrastructure companies, allocations to India declined.

According to Wood, FIIs have sold nearly $33 billion worth of Indian equities since late 2024, thus reflecting the global shift toward AI-related investments. Despite this sustained selling pressure, India’s markets have remained relatively resilient.

A major factor supporting Indian equities has been strong domestic investor participation. Monthly inflows into SIPs currently stand at approximately ₹30,500 crore per month, which is equivalent to about $3.4 billion.

These steady inflows from retail investors have helped absorb the impact of FII outflows and maintain market liquidity.

Wood notes that this “SIP culture” has become a structural pillar for India’s capital markets. Thus, reducing the economy’s dependence on volatile foreign portfolio flows.

Two Key Triggers for FII Return

According to the Jefferies strategist, two developments could trigger the return of foreign capital into India.

1. Peak in the global semiconductor cycle: If the global AI-driven semiconductor rally reaches its peak, investors may begin unwinding positions in chip-heavy markets.

2. Valuation reset in Indian equities: A sharp correction in Indian stock valuations, possibly triggered by a slowdown in domestic savings flows, could make Indian equities more attractive to global investors.

Either scenario could create the conditions for renewed foreign investment into Indian markets.

Corporate Earnings Growth Remains Strong

Despite global uncertainties, corporate earnings growth in India remains strong. Jefferies’ coverage universe reported 18% year-on-year earnings growth in the fourth quarter of calendar year 2025 (4QCY25).

Wood expects earnings for companies tracked by the MSCI India Index to grow around 15% in the next fiscal year, supported by strong domestic demand and improving credit growth. Bank loan growth in India is currently running at around 13.6%, indicating a healthy expansion in economic activity.

While AI could disrupt traditional IT outsourcing models, Wood believes Indian technology companies are adapting to the new landscape.

Major IT firms are positioning themselves as enterprise AI consultants, helping global corporations develop small language models (SLMs) and implement AI-driven solutions. This could allow Indian IT companies to capture a share of the global AI services market, even if hardware manufacturing remains concentrated in other regions.

Wood argues that if the global AI investment boom slows or investors become more cautious about tech valuations, India could emerge as a structurally resilient alternative. The country’s combination of steady domestic investment flows, strong corporate earnings growth, and expanding credit markets may make it attractive for global investors seeking diversification away from volatile technology-heavy markets.

If the AI trade begins to unwind, Wood suggests 2026 could mark the beginning of a major capital rotation back into Indian equities.

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