ET WLF: India's growth story holds firm as AI boom redirects global capital

India is losing some capital to the massive US AI investment cycle, but investors say demographics, energy demand, geopolitical shifts and Gujarat's GIFT City could underpin long-term flows into the country.

The AI investment boom is diverting capital from India into US technology and infrastructure, besides Taiwan and South Korea, but investors at the Economic Times World Leaders Forum underlined that the country's long-term growth prospects remain intact.

The panel discussion on "The New Geography of Capital: Where Is Smart Money Headed?" was moderated by ET's Arijit Barman.


AI's enormous capital needs have become the biggest force shaping global flows, said Kevin Strain, president and chief executive officer at Sun Life. The ecosystem could require $500 billion to $1 trillion in investment, pulling money into semiconductors, data centres and power generation. That has left India underweight against global benchmarks. Matching its weight in the MSCI index would require about $100 billion of additional capital, according to Strain. Despite the decline, Indian equities are trading at valuations similar to the US at about 20 times earnings, while the country has lower volatility, stable regulation and continued company formation. "AI capital needs continue to be pretty high," Strain said.

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The current diversion shouldn't be mistaken for a structural loss of confidence in India, said Sharon White, senior managing director and head of global affairs at La Caisse, one of the world's largest institutional infrastructure investors. The fund invests over 10, 20, and sometimes 30-year horizons, making demographics, talent and energy infrastructure more important than short-term market cycles. "We need to be very careful that we don't talk India down," she said.

India is among markets where La Caisse sees strong long-term potential, particularly in electricity generation, grids, transmission and renewables, White said. Ongoing energy transition and rising demand for energy security could create investment opportunities well beyond the current AI cycle.

The geography of capital is nevertheless becoming more fragmented as geopolitical risks reshape corporate strategies, said Sir Martin Sorrell, founder and executive chairman at S4 Capital.

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Globalisation is not ending, he said, but businesses are increasingly having to choose between regions as tensions involving the US and China, Russia and Ukraine, and Iran persist. "Geographical growth is going to be very different in parts," he said.

That could benefit India as companies seek alternatives to China. Sorrell said countries including India, Indonesia, Vietnam, Malaysia, Singapore, Thailand and the Philippines were becoming increasingly important to global businesses looking to diversify their Asian exposure.

The US AI boom will also sustain further, despite rising concerns about valuations. Alphabet, Meta, Microsoft and Amazon could spend about $1.1 trillion on AI infrastructure next year, said Sorrell, likening the scale of the investment to the 19th-century railroad buildout. However, the shift from capital-light technology businesses to capital-heavy infrastructure could increase financial risks. Hundreds of billions of dollars of leverage is expected to be raised to fund AI investment, while investors are already looking for value in lower-multiple markets such as Japan and the UK, said Sorrell. For dealmakers, the bigger challenge is increasingly the ability to exit investments rather than raise capital.

Anu Aiyengar, global chair of investment banking at JPMorgan, said current deal activity is being driven more by strategic buyers than private-equity sponsors. Valuation arbitrage in India, which attracted investors last year, has also diminished as Indian valuations have fallen.

PE firms are facing longer holding periods as exits become harder. Only about 10% of investments are being monetised annually, compared with 20% to 25% previously, leaving about 30,000 companies awaiting exits, Aiyengar said. "Access to capital is not the issue," she said. "It is how do I create the cycle of deployment and monetisation."

India is seeking to capture more of those flows through GIFT City, its international financial centre, said Dipesh Shah, executive director at the International Financial Services Centres Authority (IFSCA).

He noted that GIFT City has grown to about 1,300 licences from 129 in five years, while banking assets have risen to $140 billion from $14 billion. About 400 funds and more than 250 fund managers operate in the financial and tech hub, bringing in about $40 billion. Between 50 and 70 funds have shifted from Malaysia or Singapore, while another 500 to 600 funds are considering the centre.

The growing use of insurance capital in private credit and AI financing is also drawing scrutiny. Strain at Sun Life said insurers must ensure investments match their long-term liabilities rather than using insurance businesses simply as pools of cash for alternative assets.

"If they're using it just for assets and they're running duration differences... we all know how that ends," Strain said, referring to past episodes of financial stress.

White said pension funds must balance resilience, sustainability and governance with the need to generate returns. La Caisse's pensioners broadly require a return of about 6% to remain fully funded, she said.

Sorrell pointed out that the emphasis on environmental and social considerations has weakened sharply over the past two to three years due to shifting political priorities, particularly in North America. White said La Caisse had maintained those priorities without compromising returns.

The panel's message was that capital isn't disappearing from markets such as India so much as being temporarily pulled towards the extraordinary spending cycle around AI.

With technology, geopolitics and higher-for-longer interest rates reshaping investment decisions, geography and the ability to deploy and exit capital are becoming equally important as valuations.