- India could benefit from the global shift away from artificial intelligence stocks
- Foreign investors bought a net $7.2 billion in Indian equities recently
- India's machinery imports rose from $29B in FY21 to $67B by September 2026
India could emerge as one of the biggest beneficiaries of a global shift away from artificial intelligence stocks, according to Jefferies strategist Christopher Wood. However, renewed conflict involving Iran remains a major threat to the country's market outlook.
In his November 12 GREED & fear report, Wood identified India as the most obvious emerging-market beneficiary of what he calls the “reverse AI trade”.
The shift reflects growing investor interest in markets and sectors outside the crowded AI investment theme. He also sees India's relative appeal improving after Brazil's disappointing election result.
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Foreign investors have already started returning to Indian equities. They bought a net $7.2 billion over the three weeks preceding the report, including a record $5.2 billion in the week ended November 6. It marks a sharp reversal after foreign investors sold $32.4 billion worth of Indian equities in 2026 and $51.2 billion since the beginning of 2025.
Wood's argument rests partly on India's domestic investment cycle. He noted that the long-awaited private-sector capital expenditure recovery is beginning to materialise. Imports of machinery goods rose from $29 billion in FY21 to $62 billion in FY26. They reached $67 billion in the 12 months through September 2026.
Indian equities also appear reasonably valued relative to their recent history. The Nifty traded at 18.4 times one-year forward earnings, while the Nifty MidCap 100 stood at 23.1 times. Domestic mutual fund inflows provide another source of support. Equity funds attracted Rs 350 billion in October, taking inflows during the first ten months of 2026 to Rs 3.9 trillion.
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The broader market rotation comes amid concerns that the AI investment boom may be losing momentum. Wood pointed to declining return-on-invested-capital forecasts for US technology giants, even as their capital spending continues to rise. This growing gap between investment and expected returns could encourage investors to seek opportunities elsewhere.
There's A Risk
But India's prospects carry a significant geopolitical risk. Wood identified renewed hostilities involving Iran as the biggest threat to Indian equities, both in absolute and relative-return terms.
He said he would bet against another escalation, but described the call as extremely close, assigning odds of roughly 55-45. A fresh conflict could revive energy-price pressures and undermine the investment case for India.
"The biggest risk to India, both from a relative and absolute return standpoint, is clearly renewed hostilities as regards Iran. If GREED & fear had to bet on it, it would be to bet against renewed escalation by the 47th US president. But it is an extremely close call with the odds more like 55/45," Wood stated.
For now, foreign buying and improving domestic investment trends support Wood's bullish view. Whether that momentum lasts could depend heavily on developments in the Middle East.
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