Absence of AI in equities will become India's strength in a year, mkts to start attracting flows: CEA

The absence of artificial intelligence focus in Indian equities, which is among factors blamed for the selloff by foreign investors, will turn into a "strength" in a year, and the same set of people will come back to bet on our other fundamentals, a top policymaker said on Thursday.

The rupee, which has seen some sessions of a depreciation and is hurtling towards its lifetime lows, is likely to continue being under pressure, Chief Economic Advisor V Anantha Nageswaran said while speaking at SBI-Amundi India Investor Seminar here.

"If the AI boom stumbles, India is well placed to gain... one year from now, we might find that the absence of an AI trade, will turn up to have been India's strength," Nageswaran said.


Acknowledging that the absence of AI opportunities is considered a drawback of global investors when it comes to the country, the academic-turned-policymaker said India is set to have a "second mover advantage" on this front.

Terming AI as a "borrowing story", Nageswaran said a shake-off will make capital look for growth opportunities that do not depend on AI and exuded confidence that with its strong economic growth, India will be the alternative they will come to.

"I would submit that it is a matter of time before this happens," he said, adding that he is certain about this eventuality playing out.

Asserting that India is a story of the glass being more than half full, Nageswaran said four specific factors have impacted capital flows in India and also led to currency depreciation, and added that it possesses a lot of strengths.

All these four headwinds are exogeneous, and include the challenging relationship with the US, the absence of an AI trade, the West Asia conflict which has led to hardening of oil prices impacting an oil importing country like ours and the rate tightening by global central banks.

Factors which are working in favour of India include the strong growth, wherein the country has been able to post over 7 per cent growth even in the face of repeated shocks in recent years, a small current account deficit which is manageable, well capitalised banking system, low corporate leverage and the movement of domestic savings into capital markets, he said.

"Clearly, the fundamentals are very, very different and healthier right now than what the exchange rate alone might tell you," he added.