Global funds view Indian stocks as a top hedge against AI risks

Global tech giants Amazon.com Inc. and Microsoft Corp. last week committed a combined fresh investment of $52 billion in India in the coming years, with much of it going for AI infrastructure

India is drawing fresh attention from global fund managers looking to diversify equity investments in the coming year as worries over an AI bubble mount.

Aberdeen Group Plc sees Indian stocks staging a rebound next year, while Principal Asset Management Co. and Eastspring Investments view the market’s low correlation with AI trade as a hedge against global equities which have a huge concentration of tech. Strategists at HSBC Holdings Plc and Jefferies Financial Group Inc. expressed similar views.

With the AI frenzy fading and India’s stock valuations falling back near their five-year average after sharply trailing peers this year, the consumption-driven economy is back in favor. India’s equity gains are still driven by banks, consumer firms and services, offering a way to cut risks tied to a narrow group of AI winners.

“India can be a good diversifier for portfolios in 2026 as it has low correlations with other markets and any pause in AI trade will see money flowing into India,” Raj Singh, multi asset manager at Principal AMC, said. India is a strong domestic growth story and benefits from tax cuts, labor law reforms, domestic liquidity, supportive policies, and stabilization in corporate earnings, he said.

Axis Bank Ltd., Bharti Airtel Ltd. and TVS Motor Co. Ltd. are among the top picks for Jefferies, which expects Indian equities to outperform if the AI-investment theme peaks out globally.

Global tech giants Amazon.com Inc. and Microsoft Corp. last week committed a combined fresh investment of $52 billion in India in the coming years, with much of it going for AI infrastructure. But the country doesn’t have any major pure-play AI names like US chipmaker Nvidia Corp. and lacks meaningful exposure to the chip-design, manufacturing and equipment ecosystem. Early AI initiatives at Tata Consultancy Services Ltd. have drawn muted investor interest.

In contrast, China’s equity landscape includes partial AI proxies in Tencent Holdings Ltd. and Alibaba Group Holding Ltd., as well as listed chip firms such as Cambricon Technologies Corp. and Moore Threads Technology Co. Those exposures give investors leverage to any AI-driven upside, but they also bind returns more closely to the sector’s inherent volatility and to policy swings in Beijing.

“India’s a good diversifier at this time,” said Christina Woon, a portfolio manager at Eastspring Investments. Investors can tap India’s domestic growth drivers, with earnings expectations still more reasonable than in many other markets, she said.

Other local factors are also providing a strong backdrop for Indian equities. The central bank has slashed interest rates, the economy grew 8.2% in the latest quarter, and a trade deal with the US is likely to be signed soon.

“India could surprise next year after a lackluster 2025,” said Jerry Goh, investment director of Asian equities at Aberdeen. “We are carefully positioning ourselves in areas where valuations look relatively more attractive.”