If Global AI Trade Cracks, Does India Get A Second Chance? ICICI Prudential's Anand Shah Weighs In

For Indian markets, 2025 was forgettable, but mainly humbling. While global emerging markets surged nearly 30%, India barely broke even in dollar terms. According to Anand Shah, that underperformance may finally have done something useful — it reset expectations. "One of the biggest issues earlier was the valuation premium India traded at," Shah said. "To that extent, valuations are not so much of an issue anymore."

That reset is central to his outlook for 2026, a year he believes will be defined less by grand narratives and more by execution and selective opportunity.

AI dominated global flows in 2024 and 2025, pulling capital toward US tech stocks and away from markets like India. Shah does not question the technology’s inevitability, but he does question the price being paid for it.

He likens AI today to telecom in the early 2000s. Demand was certain, but many companies failed because cash flows could not justify the scale of investment. "The issue was not whether people would use it," he said. "The issue was cash flow."

That overinvestment risk, combined with premium valuations, creates what Shah calls 'extreme risks' in AI-linked stocks. If sentiment turns, even marginally, capital could flow toward markets offering growth without binary outcomes, and that's where India comes in.

Shah is blunt in saying that India will not be leading the AI creation race, and that Indian IT firms are enablers, not builders. But history suggests that is enough.

From the global Year 2000 computing issue to moving onto to the cloud , Indian IT has monetised every major technology transition by helping global corporations adapt. As enterprises move from experimentation to deployment in AI, Shah believes that demand will shift toward areas where Indian IT firms are structurally strong — integration, optimisation and cost control.

Shah also cautions against expecting a valuation-led market rally. Profit-to-GDP has already rebounded from 2% in 2020 to over 4.5%, making outsized earnings acceleration unlikely.

"Market expectations have to align with nominal GDP growth," he said, adding that expecting profits to structurally outpace the economy would be far-fetched.

Despite muted headline returns, Shah remains constructive on specific pockets like BFSI, consumption, and manufacturing.

BFSI remains his core theme, spanning private banks, PSU banks, insurance, asset and wealth management. He also believes that services-led consumption looks more attractive than product consumption, where penetration is already high.

Manufacturing and allied sectors still feature in his picks, but valuations have forced a shift from to bottom-up stock picking.

According to Shah, the era of easy narratives — AI, manufacturing, China-plus-one — is giving way to scrutiny, noting that, "The theme for 2026 is narrative to execution, macro to micro."