Global AI selloff: Why Indian markets could remain resilient despite near-term volatility

Indian equity benchmarks continued to outperform most Asian markets in Friday's trade, even as global equities came under pressure after an overnight Wall Street sell-off. The decline in US markets was triggered by technology stocks, which came amid concerns over a possible slowdown in artificial intelligence (AI)-related investments and data centre spending.

The concerns followed setbacks suffered by the Donald Trump-led Republicans in the US mid-term elections, as Democrats made gains, raising questions over the outlook for fresh investments in AI and technology data centres.

The weakness in global technology stocks has brought the 'reverse AI' trade into focus.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said, "The bloodbath in the US markets will impact most other markets today, but India is likely to be the least impacted. The big rout of around 5.6 per cent in Nasdaq was triggered by concerns about a slowdown in data centre spending, since the Democrats are opposed to massive data centre investment. This tech rout, particularly the sharp deceleration in AI trade, will turn out to be beneficial for India."

Vijayakumar also pointed to recent foreign institutional investor (FII) buying as a factor supporting the domestic market.

He stated, "It is important to note that the FIIs have bought equities for Rs 35,781 crore in the last five trading days. Despite selling and profit booking by DIIs (domestic institutional investors), the market is likely to remain resilient since FII buying will continue in the changed global market construct."

He added, "It is important to recognise the fact that this ongoing rally has fundamental support from impressive earnings growth which has come better-than-expected. A significant factor which investors should understand is that this rally is driven by large-caps which have become attractively valued. For financials, tech and auto stocks, there is more upside."

Domestic IT stocks bucked the broader market trend, with Nifty IT rising more than 1 per cent and emerging among the top outperformers during the session.

Ponmudi R, CEO of Enrich Money, said the market's ability to hold on to its gains would be an important indicator of investor confidence in the near term.

He said, "The market's ability to sustain its gains will be an important near-term indicator of underlying investor confidence. While the broader trend remains constructive, intermittent profit-booking at higher levels cannot be ruled out."

India VIX rises

Meanwhile, the India VIX, which measures the market's expectation of volatility over the next 30 days based on Nifty50 options, climbed 8.26 per cent to 16.87, according to NSE data.

Commonly referred to as the market's fear gauge, the index tracks expected volatility. A rise in the VIX generally indicates heightened uncertainty and greater caution among investors.

Geopolitical developments also remained a source of concern. Ponmudi said US President Donald Trump's threat to expand military strikes against Iran had kept investors alert to the possibility of further escalation.

"Any intensification of tensions could influence global risk appetite and trigger renewed volatility in crude oil prices. Against this backdrop, investors are likely to remain cautious, with geopolitical developments, movements in global markets and profit-booking at elevated levels likely to shape near-term market direction," he added.