Bloodbath in Nasdaq, Kospi and Nikkei but why Nifty is an oasis of peace amid global rout

A global selloff in technology and artificial intelligence (AI) stocks sent the Nasdaq plunging 5.5% and hammered markets across Asia, but Indian equities are emerging as an unlikely haven as investors rotate away from the AI trade. Japan’s Nikkei slumped nearly 7% on Friday, while South Korea’s Kospi fell more than 9% to slip below the 5,000 mark. Taiwan’s benchmark also dropped more than 8% before regional markets stabilised as dip buyers emerged.

The selloff followed a 5.6% plunge in the Nasdaq, which recorded its worst day in the last 19 months as $3 trillion was wiped off S&P 500 companies. Investors are increasingly concerned that political resistance to massive data centre investments and doubts over the returns from enormous artificial intelligence spending could slow the AI infrastructure boom.

“The bloodbath in the US markets will impact most other markets today, but India is likely to be the least impacted,” said Dr. V K Vijayakumar, chief investment strategist at Geojit Investments.


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The sharp deceleration in the AI trade could instead benefit India, he said, adding that foreign investor buying and stronger than expected corporate earnings are providing fundamental support to the market.

“The big rout of 5.6% in Nasdaq was triggered on concerns of a big slowdown in data centre spending since the Democrats are opposed to massive data centre investment,” Vijayakumar said. “This tech rout, particularly the sharp deceleration in AI trade will turn out to be beneficial for India.”

India’s positioning as an “anti-AI” trade means that any unwind in AI-linked assets could trigger a rotation into other emerging markets, including India and Brazil. Investors are seeking markets that have been less exposed to the most crowded technology trades and where valuations have become more reasonable after a period of underperformance.

“Regional equity plays that have been relatively less exposed to the AI play this year appear to be benefiting in the initial phase of re-allocation,” said Radhika Rao, senior economist at DBS.

Indian equities have also received a powerful boost from foreign flows. Foreign institutional investors bought nearly ₹15,000 crore of Indian equities on Thursday, their biggest single-day purchase in more than a year, according to provisional exchange data. The purchases came after months of relentless selling had pushed foreign ownership of Indian stocks to historic lows.

“Indian equity markets have gained steam this week, supported by a strong pick-up in foreign portfolio interests – net inflows worth $4 billion in the past ten sessions as a stable rupee resulted in index gains in dollar terms,” Rao said.

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Vijayakumar said FIIs had bought equities worth ₹35,781 crore in the past five trading sessions. While domestic institutional investors have continued to sell and book profits, he expects the market to remain resilient if foreign buying continues under the changed global market construct.

The rotation is also reinforcing India’s large-cap bias. While the Sensex rose 2.6% on Thursday, the Smallcap 100 index gained only 0.67%, highlighting where institutional money is currently flowing.

“It is important to recognise the fact that this rally is driven by large-caps which had become attractively valued,” Vijayakumar said. “For financials, tech and auto stocks there is more upside.”

The global selloff has been most severe in companies directly tied to the AI supply chain. Samsung Electronics and SK Hynix fell nearly 10% and 12%, respectively, in South Korea. Japan’s Kioxia plunged 14%, while Taiwan Semiconductor Manufacturing Co. dropped as much as 8.5%. SoftBank Group, a major AI investor, declined 11%, while the cost of insuring against its debt default rose to the highest level in four years.

Nvidia, the face of the AI boom, fell 9.3% and was the biggest drag on the S&P 500. The stock is now down 2.6% for the year, after annual gains of about 39%, 171% and 239% over the previous three years.

The concern is spreading beyond chipmakers. A slowdown in data centre construction would affect demand for AI chips, electricity and a range of products and services that have been absorbed by the AI investment cycle. Smaller companies could also face pressure as tighter financial conditions and higher interest rates limit their ability to raise capital.

India’s relative insulation from that chain is now becoming an investment advantage.

“Higher energy prices, the AI trade, currency weakness and FII outflows until recently were the big overhang on the Indian market. Now that pressure is easing, the worst appears to be behind us from a macro perspective,” said Shahzad Madon, managing director and chief executive officer of TCG AMC.

Madon said market performance would ultimately depend on fundamentals and earnings. India’s macroeconomic conditions have remained resilient despite a difficult global environment, while corporate earnings have been strong over the past three quarters.

“This should set the stage for strong growth going ahead,” he said. “Valuations are far more reasonable post two years of market underperformance, while earnings have continued to compound. We believe that the risk-reward is increasingly favourable.”

Uday Kotak, founder of Kotak Mahindra Bank, has also said India could benefit if the global AI investment boom unwinds. The billionaire banker warned that leverage used by global companies to fund their AI ambitions had contributed to significant overvaluation in some cases.

“The kind of leverage which global companies are taking to fund their AI aspiration is also leading to significant overvaluation in many cases,” Kotak said in a virtual address ahead of India’s Diwali festival. “And India, as it works down the path of building its own AI capability, will also benefit for reverse flow, should it happen.”

Kotak said the AI trade had made India look more like an “anti-AI” market over the past year. While he remains convinced that artificial intelligence is transforming the global economy, he cautioned that the scale of leverage used to finance the boom has raised concerns about valuations and the possibility of a broader unwind.

As the world’s most crowded AI-linked trades face a credibility test, India’s comparatively lower exposure, improving earnings and renewed foreign inflows are giving the market a rare degree of insulation from the global technology rout.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)