Global AI sell-off makes India attractive for foreign portfolio investors

NEW DELHI — The AI sell-off has made India, which is widely regarded as a non-AI trade, attractive for foreign portfolio investors (FPIs), who have bought aggressively in the Indian market with a massive net inflow of Rs 45,970 crore in November so far.

This spiked the Nifty by a spectacular 8.6 per cent. FIIs have turned major buyers in index heavy weights in financials, IT, automobiles and telecom.

“Furthermore, the impressive earnings growth in India and the attractive large-cap valuations, made India a favoured investment destination,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.

Last week, the market witnessed a sudden and complete role reversals from institutions. FPIs turned aggressive buyers, and DIIs turned sellers on all days.

The aggressive buying by the FPIs and the consequent short squeeze triggered a big rally in the market.

The sudden change in FPI stance was triggered by the AI sell-off in the US and other AI markets like South Korea, Taiwan and Japan, said analysts.

This sell-off, in turn, was triggered by fears surrounding data centre spending in the US. The Democrats, who won both the chambers of the Congress, are opposed to indiscriminate data centre spending. They will demand guard rails for AI, said market participants.

The Nifty witnessed strong gains in all five sessions and closed at the high point of the week at 25,030.35 levels, up 8.6 per cent. Bank Nifty also witnessed strong gains, closing 8 per cent higher during the week, while broader markets relatively underperformed, with the Nifty Midcap 100 and Nifty Smallcap 100 closing higher by 5.8 per cent and 2.8 per cent, respectively.

In the coming weeks, the sustainability of these foreign inflows will be the key variable, with heavy domestic profit-booking leaving the rally reliant on FII support. Market participants will closely monitor Brent crude prices and developments surrounding US-Iran tensions.