Korea's pain will be India's gain? Why Nifty bears betting on Kospi crash may get disappointed

Extreme turbulence in the global artificial intelligence trade has sent South Korea’s benchmark KOSPI index on a roller-coaster ride, sliding 18% from its historic peak to test bear market levels before shrugging off the technical downturn today on the back of a powerful 5% rally. The violent swings have triggered a stark divergence in emerging market equities, while India’s Nifty pushes 3% higher over the last month.

Foreign Portfolio Investors (FPIs) have pulled about Rs 2.6 lakh crore out of India in 2026, with the lion's share of that capital chasing the global AI semiconductor buildout via Samsung and SK Hynix in Korea, and TSMC in Taiwan. Now, with the tech trade under severe pressure, the question is whether Korea’s pain will provide the structural medicine to revive India's under-owned bulls.

But market experts warn against viewing the sudden plunge in South Korean equities as an automatic value play. The index's vulnerability stemmed directly from extreme concentration and historic levels of retail leverage.


Monarch CEO Gaurav Bhandari is skeptical that Korea's fall makes it a bargain. "The argument that Korean equities have become 'cheaper' after the crash is misleading," he said. "A market that falls 18% after rallying 200% is not cheap, it is less expensive than its peak. That is a very different thing."

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The real story, in his telling, is how narrow the rally was to begin with. The Kospi's climb was built almost entirely on two stocks — Samsung and SK Hynix — which together account for 52% of the index. Retail margin debt had swelled to a record 37.74 trillion won.

When the AI semiconductor trade reversed, that concentration turned into a liability. The market fell violently enough to trigger circuit breakers. "This is not a sign of a market offering value," Bhandari said. "It is a sign of concentration, leverage, and fragility."

Against that, he points to India's broader earnings base. The Nifty 500 delivered 15.6% earnings growth in FY26, spread across banking, consumption, infrastructure, IT, and pharma — with no single sector dominating the way semiconductors dominate Korea's index. "India's returns may not be as dramatic in any single year," he said, "but they are far more sustainable."

Tanvi Kanchan, Associate Director at Anand Rathi Share & Stock Brokers, pushes back on the idea that money moves to India automatically. Context, she argues, is everything.

Despite being in the bear market, KOSPI remains one of the best-performing major indices in the world this year.

What looks like an exodus, in her reading, is really portfolio housekeeping. As Korean stocks surged, their weightings in global and emerging-market benchmarks climbed sharply, forcing many active fund managers to trim positions just to stay within risk limits. That's a rebalancing of roughly $62 billion as of late May, she said — "not direct exit."

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Even after the rally, valuations haven't stretched the way the price chart suggests. The Kospi trades at around 7x 12-month forward earnings, the cheapest since the Global Financial Crisis, because earnings estimates have been revised sharply higher. Consensus now expects a three-fold jump in EPS growth for 2026.

"Korea's correction makes India relatively more attractive from a risk-reward standpoint, but it will not mechanically redirect flows until the AI-semiconductor trade either peaks or stabilises, and until India's own earnings delivery gives global allocators a concrete reason to return,” Kanchan said.

That "concrete reason" has been missing so far and the scale of what India has lost out on this year makes the case starkly. Total FPI outflows from India in 2026 stand at approximately ₹1.92 lakh crore, Kanchan said. The lion's share of that capital has flowed instead into Samsung and SK Hynix in Korea, and TSMC in Taiwan — the three names at the centre of the global AI semiconductor buildout.

But she sees the seeds of a reversal already in place. Once the AI capex supercycle peaks and markets start questioning whether all that infrastructure spend is actually translating into earnings, she expects capital to rotate toward markets with strong domestic demand, low correlation to global tech cycles, and a credible multi-year growth story. India, she says, offers that combination in a way few emerging-market peers can match.

She flags two specific triggers to watch. First: a peak in the global semiconductor cycle. "The moment SK Hynix and Samsung start guiding more cautiously, the crowded AI trade will look for exits, and India is likely to be a primary destination," she said.

Second, a valuation reset in Indian equities that has already partly played out. The Nifty 50 is down roughly 10% year-to-date, and India is now one of the biggest underweights in global emerging-market portfolios, at a benchmark weight of just 15.25% in the MSCI Emerging Markets Index.

"Light foreign positioning is historically a setup for sharp re-entry when the macro backdrop turns," Kanchan said. On that basis, she believes India is well-positioned to be the single largest beneficiary of a post-AI-trade rotation with domestic growth, SIP-anchored market stability, a credible reform narrative, and historically light foreign positioning already in place.

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