India’s services-led economy is under the scanner again. In its latest India Strategy report dated October 13, HSBC described the country as the world’s “anti-AI” market, a place defined by restraint, not exuberance. The brokerage said global investors are turning to technology-heavy peers such as Korea and Taiwan, drawn by the wave of artificial intelligence spending reshaping global markets. But CLSA, in its Happy Feet report released on October 17, took a more sanguine view noting that India’s fiscal discipline, controlled leverage, and credit-driven growth make it one of the few major markets anchored in fundamentals amid the global tech euphoria.
Yet in the same breath, analysts across the two reports conceded that India’s “slower” approach to automation has preserved jobs, supported consumption, and kept credit flowing to the real economy, a quiet strength that could matter if the global AI frenzy fades.
HSBC on AI restraint and investor rotation
HSBC argued that India’s cautious adoption of AI across its public and corporate sectors has become its defining contrast to other Asian markets. “Global AI exuberance is palpable,” said Yogesh Aggarwal, head of research at HSBC India. “At this stage, India appears to be at a distinct disadvantage in the AI revolution.”
The brokerage said that while India remains a long-term structural story, its near-term narrative is shifting. Over the past twelve months, foreign institutional investors (FIIs) sold nearly USD 30 billion (Rs 2.5 lakh crore) worth of Indian equities, while redirecting more than USD 15 billion (Rs 1.25 lakh crore) into Taiwan’s technology shares during the September quarter alone the highest on record.
According to HSBC, global investors are “chasing capacity, not sentiment.” With Korea and Taiwan seeing record investment in chip manufacturing and data infrastructure, India with its service-heavy structure is being viewed as the global hedge against AI mania rather than its beneficiary.
HSBC on Indian IT: Technology conservatism or economic prudence?
HSBC said the Indian IT industry, which employs nearly 20 million people directly and indirectly, is now navigating its slowest structural reset in years. Revenues from custom software and maintenance together more than half of the sector’s business are expected to fall by 3–4% annually between FY26 and FY28 as global clients adopt productivity tools that reduce billable hours.
But the report also warned against reading this as a collapse. “While the initial impact will be deflationary, AI adoption will ultimately expand the services pie,” HSBC wrote. “Much like the cloud transition, it may compress traditional billing models but create higher-value opportunities later.”
Executives across banking and finance told HSBC that Indian companies are deploying AI to make staff faster, not redundant. “The focus is on doing better work with the same people, not replacing them,” the report noted.
This restrained approach, HSBC said, has a social upside. It has preserved workforce stability and prevented the kind of employment shock that rapid automation could trigger in labour-intensive economies.
CLSA’s counterpoint: India’s macro stability stands out
If HSBC’s note captured global caution, CLSA’s “Bits & Pieces: Happy Feet” report dated October 17 offers the counterbalance. It portrays India’s macro fundamentals as a rare island of discipline in a world flooded with liquidity and debt.
The brokerage pointed out that global debt rose by $21 trillion (Rs 1,750 lakh crore) in the first half of 2025 alone, pushing the total to $337 trillion (Rs 28,000 lakh crore) or 324% of world GDP. That, CLSA warned, has inflated a speculative “debasement trade” in gold, silver, bitcoin, and AI-linked equities, reminiscent of the late-1990s dotcom melt-up.
Against that backdrop, India’s fiscal restraint and domestic credit-driven expansion look almost boring but strong. “India’s relative calm is not inertia; it’s insulation,” the report said, adding that the country’s low external debt and steady banking liquidity offered “a margin of safety that exuberant markets lack.”
India’s credit and manufacturing cycle gathers pace
Both HSBC and CLSA noted an undercurrent of real-economy momentum in India. Domestic credit is expanding steadily, with double-digit growth in MSME lending, housing, and infrastructure.
HSBC, in fact, cited Goldman Sachs’ “Deregulation Dividend for the Banking System” report (15 Oct 2025), noting that the RBI’s recent cash reserve ratio (CRR) cut and risk-weight relaxation on SME and retail loans could release capital equal to nearly 2% of system credit. That liquidity, HSBC said, would likely feed directly into manufacturing and small-business expansion rather than speculative activity.
“The banking system remains well-funded and well-capitalised,” the brokerage wrote. It added that policy steps over the past quarter have improved transmission of liquidity from large lenders to smaller borrowers, particularly in construction and rural housing.
CLSA echoed this view, pointing to signs that India’s manufacturing and infrastructure pipelines are accelerating quietly beneath the market’s AI obsession. Factory orders, power generation, and logistics data all point to sustained demand in non-tech industries.
“Liquidity in India is flowing into the real economy, not speculative AI bets,” CLSA said. “That could make its growth more durable if the global tech trade cools.”
Global AI exuberance, local caution
Both brokerages acknowledged that India’s deliberate pace contrasts sharply with the global mood. CLSA cited macro trader Paul Tudor Jones, who warned that the current market environment had “all the ingredients of a blow-off stage rally” high leverage, crowding, and narrow leadership.
HSBC said that while this AI-driven momentum was real, it was also highly concentrated in a handful of companies and markets. The combined capital expenditure of Amazon, Microsoft, Oracle, and Google, it noted, is expected to jump from $221 billion (Rs 18 lakh crore) in 2024 to nearly $500 billion (Rs 41 lakh crore) by 2030 a scale of investment that India’s public and private sectors cannot yet match.
India’s National AI Mission, by comparison, has a total funding envelope of just USD 1.25 billion (Rs 10,300 crore) over five years. “The capital gap explains the FII rotation,” HSBC said. “The AI build-out is the most aggressive tech cycle since the internet boom and capital is following capacity.”
But CLSA’s analysis suggested that this exuberance carries its own risks. When global debt is this high, speculative cycles can turn abruptly. “If the AI trade reverses,” CLSA wrote, “markets with grounded fundamentals, like India, will emerge stronger.”
AI restraint as quiet resilience
HSBC said India’s “anti-AI” label, while accurate in terms of speed, hides a deeper economic truth. The country’s services sector, which forms 55% of GDP, is not shrinking it is stabilising. IT firms are reorganising for efficiency, banks are digitising without cutting staff, and manufacturing’s share of GDP is rising for the first time in a decade.
CLSA framed the same phenomenon differently: India is not resisting change, it’s sequencing it. By prioritising credit expansion and capacity building before full-scale automation, it is setting a foundation for inclusive growth.
“India is playing the long game,” CLSA wrote. “When speculative cycles exhaust themselves, capital will chase stability.”
For investors, a tale of two markets
For investors, the divergence between the two reports presents both caution and opportunity. HSBC’s assessment warns that India’s IT-heavy indices could lag as AI deflation trims margins, while CLSA’s macro analysis implies that India’s steady domestic cycle could outperform when global liquidity tightens.
In valuation terms, Indian IT majors TCS, Infosys, Wipro are already down 15–20% from their 2022 peaks. But financials and manufacturing-linked lenders remain stable. HSBC maintained Buy ratings on ICICI Bank, HDFC Bank, and Axis Bank, calling them “early beneficiaries of selective AI adoption and credit deregulation.”
The immediate narrative may be dominated by India’s absence from the AI rally. But the longer story, as both HSBC and CLSA indicated, may turn out differently. The same caution that limits today’s upside could protect tomorrow’s downside.
If the global AI melt-up loses steam, India’s “boring” economy powered by banks, builders, and small manufacturers may be exactly what investors rediscover.