NEW DELHI — A reversal of the current artificial intelligence investment frenzy could shift global investor attention back to India, potentially creating significant upside for Indian markets, according to a report released on Thursday.
The report by Bay Capital said much of the global build-out of AI infrastructure has been funded through debt, drawing parallels with risks seen during the telecom and fibre boom. It cited research showing that despite an estimated $30 billion to $40 billion in enterprise investment in generative AI, 95 percent of organizations are yet to see any return.
According to the report, India’s market structure, currently viewed as a disadvantage in an AI-dominated investment environment, could prove to be an advantage once investor focus shifts back to fundamentals.
“India’s under-indexing to a potentially overhyped theme creates asymmetric upside when capital markets return to fundamentals,” the report said.
Bay Capital noted that India has limited direct exposure to AI infrastructure such as semiconductor manufacturing and hyperscale data centers. However, while the country may not be building foundational AI infrastructure, it is rapidly emerging as an AI application-driven economy, creating efficiency gains across its large domestic market.
The global AI trade, fueled by aggressive capital expenditure by hyperscalers and a surge in semiconductor-linked equity valuations, has reshaped capital flows and investor sentiment worldwide. India’s perceived absence from this boom has led to a sharp reallocation of foreign capital, the report said.
Foreign portfolio investor outflows from India totaled around $23 billion in 2024 and about $13 billion year-to-date in 2025, according to the India-focused investment manager.
“If ‘Sell India’ was the allocation choice for investors seeking AI exposure, then ‘Buy India’ should logically become the preferred choice when the AI hype reverses,” the report said.
Despite the rotation of foreign capital out of Indian markets, the report said India’s macroeconomic fundamentals remain among the strongest globally. India contributes about 9 percent to global GDP growth, or roughly 18 percent on a purchasing power parity basis, and its economy is expected to grow at a compounded rate of more than 6.7 percent between FY25 and FY28, the fastest pace among G20 economies. (Source: IANS)
