As talk grows that the global AI boom may be running out of steam, investors are starting to look for markets that are less exposed to the tech frenzy. According to a recent Jefferies strategy report, India is emerging as an “anti-AI” investment play.
Why India is seen as an “anti-AI” market
India has very little exposure to the global semiconductor supply chain. Unlike the US, Taiwan, or South Korea, it does not rely on chip exports or AI hardware for growth. That makes India a limited participant in the global AI trade.
According to Jefferies, a large part of the global stock rally over the past year has been driven by AI-related stocks, especially in the US. Jefferies points out that the US market’s weight in the MSCI All Country World Index rose to about 67% by late 2024, helped by the AI surge. Jefferies believes that if this AI-led rally fades, US dominance could weaken, opening the door for other markets to perform better.
Jefferies also notes that India’s tech sector is largely made up of IT services companies rather than AI product makers. In Jefferies’ view, these firms are vulnerable, as AI tools could reduce demand for traditional software outsourcing and raise concerns about urban job losses. Jefferies says this risk is already reflected in stock prices, which is why IT remains an underweight call in its model portfolio.
Domestic strength matters more than global tech
As per Jefferies’ perspective, while IT faces pressure, India’s equity market is driven far more by domestic demand than by global tech trends.
Jefferies adds that one of the biggest supports for the market is money flowing in from domestic investors. Mutual funds, insurance companies, pension funds, provident funds, and retail investors are together investing about $7–8 billion a month, which Jefferies says is supported by household savings of nearly $1 trillion a year.
One of the biggest supports is money flowing into the market from within the country. Domestic investors, including mutual funds, insurance companies, pension funds, provident funds, and retail investors, are putting in about $7–8 billion every month. Jefferies says these flows are steady and are backed by total household savings of nearly $1 trillion a year.
Over a full year, these structural inflows add up to roughly $65 billion. This pool of local money has helped prevent sharp market falls, even when foreign investors have been selling.
Earnings expected to pick up
Another key reason Jefferies is positive is the earnings growth outlook.
MSCI India earnings growth is expected to rise from around 8–9% in FY26 to about 13–14% in FY27. In fact, Jefferies estimates that earnings growth could jump by nearly 6 percentage points, reaching around 16% in FY27.
This improvement is expected to come mainly from domestic sectors, as per Jefferies:
- Banks, as credit growth improves and interest rates ease
- Autos and power, helped by a low base and tax cuts
- Cement and telecom, which are expected to post the strongest growth, at 25% or more over FY26 and FY27
These are the same sectors where Jefferies is Overweight – lending financials, autos, cement, hospitality, telecom, power, and real estate. All of them depend far more on Indian demand than on global tech spending.
Stable macro picture adds comfort
India’s external position also looks steady. The current account deficit is expected to stay very low, at around 0.6–0.7% of GDP in FY26 and FY27. This is among the lowest levels seen in the past 20 years. Lower oil prices, expected to stay near $60 a barrel, and strong services exports are key reasons for this. Because of this, Jefferies believes the worst is over for the rupee. The firm expects the currency to hold near Rs 90 to the dollar over the next 6 to 12 months, supported by a stable balance of payments, as per Jefferies.
Room for FII buying to stage a comeback?
Foreign investors are still cautious about India. Jefferies points out that 54% of large emerging market funds are underweight India, and overall foreign positioning is close to decade lows. This means expectations are already low.
At the same time, India’s valuation premium over other emerging markets has come down sharply, from about 90% last year to 64% now, which is close to its long-term average.
As per Jefferies, if earnings improve as expected and global tech loses momentum, even small increases in foreign inflows could have a noticeable impact.- is this what Jefferies is saying? Please put out their actual quote