South Korea's Kospi crashes 40% from June peak as AI frenzy fizzles out. Can this benefit Dalal Street?

South Korea’s stock market skyrocketed to record highs before tumbling over 40% in four months as the AI frenzy fizzled out, wiping off massive sums of investor wealth. While Korean investors count losses, analysts believe Dalal Street can gain from Korea’s pain, but selectively.

The Kospi had skyrocketed over 122% since the beginning of the year to hit a lifetime high of 9,386 in June amid a global AI frenzy, before things began to go downhill. While South Korea’s stock market grabbed headlines as the world’s best performing stock market this year so far, analysts were quick to point out the concentration of chipmakers Samsung Electronics and SK Hynix, which make up just over half of the benchmark Kospi.

The final nail in the coffin was likely to be the single-stock leveraged ETFs linked to these two chipmakers, which seemed to further increase concentration risks, leading to the Kospi spiralling down more than 40% to trade below 5,550.


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Struggles of Dalal Street's bulls

Meanwhile, Dalal Street has been facing headwinds of its own. Soaring oil prices and persistent FII selloff, buckled with skyrocketing bond yields to multi-decade highs have been scaring away the bulls, pushing Sensex down 15% in 2026 so far. But AI ironically turned to be a boon in disguise.

While IT stocks saw a massive plunge early during the year as the AI frenzy crept in, they turned into beneficiaries when the AI trade began to fail, as analysts pointed out what they called the ‘anti-AI’ advantage. Overall, the Indian stock market was seen as having an advantage over South Korea or Taiwan when analysts questioned the excessive spending by hyperscalers behind AI infrastructure.

Will India's 'anti-AI' advantage pay off?

Market experts like Michael Burry and Ray Dalio have been screaming AI bubble bursts ahead. While global sentiment remains cautious, investors on Dalal Street are hoping India’s anti-AI advantage pays off. Analysts however advise caution.

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Kospi’s 40% crash from its June peak of 9,385 was because two chipmakers carried nearly half the index, with retail leverage stacked on top, said Vaqarjaved Khan, Senior Fundamental analyst at Angel One. He believes that India is built differently. “Our benchmarks are spread across roughly 13 sectors, and domestic institutions keep absorbing foreign selling.”

While South Korea’s Kospi spiralled down 13.5% between October 6 to 14, Nifty slipped under 1%. “Global allocators pay for that kind of stability, and that is where rotation money can find a home,” the analyst said.

To some extent, risk-off sentiment in AI related play can benefit well diversified indices in India in terms of flows, said Sunny Agrawal, Head of Fundamental Research at SBI Securities.

However, Khan wouldn’t call it a rescue. Foreign investors have still pulled over Rs. 2.87 lakh crore this year so far. According to the analyst, investors should favour domestic-demand sectors, avoid leverage, and watch FII flows before assuming the tide has turned.

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Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.