- Foreign investors sold a record $29 billion of Indian equities in H1 2026 to fund tech stocks in Korea, Taiwan
- India saw a net inflow of $1.8 billion in July, marking the first net buying month since February
- Large-cap stocks may rebound as valuations discount more than usual compared to mid-caps.
A rotation away from AI-linked trades could put Indian equities back on global investors' radar, according to Christopher Wood of Jefferies, who says overseas investors have started returning after months of heavy selling.
Wood notes that foreign investors sold a record $29 billion of Indian equities in the first half of 2026, largely to fund investments in technology hardware stocks in Korea and Taiwan rather than because of India's fundamentals. However, foreign investors have bought a net $1.8 billion of Indian shares so far in July, marking the first month of net buying since February as money begins rotating out of AI-related trades.
The report argues that India has effectively been the "inverse AI trade", underperforming as global capital chased technology beneficiaries elsewhere. That trend may now be beginning to reverse, although Wood cautions that renewed conflict around the Strait of Hormuz and the risk of higher energy prices remain significant headwinds for an economy dependent on imported crude.
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Jefferies also believes domestic investors continue to provide a strong cushion for the market. Systematic investment plans contributed Rs 318 billion in June, accounting for 87% of equity mutual fund inflows, with steady domestic savings continuing to support valuations despite foreign selling.
Key India Calls
Large caps may be due for a comeback. Jefferies says it is time for tactical mean reversion as large-cap valuations trade at a much wider discount to mid-caps than their long-term average, while earnings growth is expected to improve.
Foreign flows are showing signs of returning. Net purchases of $1.8 billion in July suggest the first meaningful reversal in overseas flows since February as investors rotate away from AI-heavy markets.
Domestic money remains India's biggest strength. Persistent SIP and mutual fund inflows continue to underpin the market even as global investors reassess allocations.
Oil remains the biggest risk. Escalating tensions around the Strait of Hormuz could raise energy costs, weigh on the rupee and increase pressure on government finances.
Jefferies is bullish on India, especially as AI bets become calibrated.
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