As investors begin to question whether the AI frenzy is worth the money being poured into it, India could emerge as an attractive destination for global funds. Heavy AI spending by US technology companies and concerns over returns may encourage fund managers to scout for opportunities beyond technology stocks, according to Jefferies.India could be among the biggest beneficiaries of this shift, the brokerage said in its latest GREED & fear investment strategy report.“In emerging markets which GREED & fear knows more about, the obvious market to benefit from the reverse AI trade has been India.”The report said more fund managers were now looking at investment options outside AI stocks, as doubts grow over whether the AI boom can continue.“From an investment standpoint, the now widespread view that the AI thematic has peaked is leading to a growing desire to look at non-AI trades on the part of portfolio managers.”
Foreign investors bring money back to Dalal Street
Signs of this shift are already visible in foreign investment flows into Indian equities. Overseas investors have bought a net $7.2 billion worth of shares over three weeks, including a record $5.2 billion in the week ended November 6, Jefferies said.The buying comes after a period of heavy foreign selling. Net outflows from Indian equities stood at $32.4 billion since the beginning of 2026 and $51.2 billion since the beginning of 2025, measured over the respective periods.Jefferies said India’s relatively attractive stock valuations and better-than-expected economic recovery were adding to its appeal.“The other point about India is that valuations, relative to history, remain comparatively modest while the cyclical recovery in the economy this year has been better than expected.”The Nifty was trading at 18.4 times its expected earnings over the next year, while the Nifty MidCap 100 was trading at 23.1 times its expected earnings.
Machinery imports signal pickup in private investment
The report also highlighted signs that private-sector investment is picking up. Machinery imports, an indicator of investment activity, more than doubled from $29 billion in FY21 to $62 billion in FY26. They rose further to $67 billion in the 12 months ending September 2026.Domestic investors have also continued to support the market through mutual fund investments. Equity mutual fund inflows stood at Rs 350 billion in October, taking the total for the first ten months of 2026 to Rs 3.9 trillion.”India remains the most dynamic capital market in the world after the US,” Jefferies said. However, the brokerage noted that the growing supply of equities had limited gains in benchmark indices.
Why the AI investment story is facing questions
The possible shift towards markets such as India comes as investors increasingly question the returns that large US technology companies are getting from their heavy AI spending.Jefferies said the median forecast return on invested capital for four major US technology companies had fallen from 21.7 per cent to 16.8 per cent for 2027. This decline comes even as their capital spending is expected to increase.The brokerage believes that growing concerns over AI investment returns could encourage global fund managers to diversify into other markets. India could benefit from this shift, backed by improving private-sector investment activity and continued inflows into domestic equity mutual funds.
