India bucks Asian market sell-off as 'anti-AI trade' gains traction; can outperformance sustain?

Indian equity benchmarks emerged as a relative bright spot in Asia on Friday, even as other Asian markets came under pressure amid renewed concerns over artificial intelligence (AI)-related investments.

The weakness across other Asian markets followed an overnight sell-off on Wall Street, led by technology stocks, amid concerns over a potential slowdown in AI investments and data centre spending.

The concerns came amid setbacks for the Donald Trump-led Republicans in the US mid-term elections, with Democrats making gains. The developments have brought renewed attention to the outlook for investments in AI and technology infrastructure.

The weakness in global technology stocks has also brought the so-called 'anti-AI trade' into focus.

"Having no AI companies has meant that Indian markets have been less volatile. I think we definitely have an 'anti-AI trade' benefit," Nithin Kamath, Founder and CEO of Zerodha, wrote in a LinkedIn post.

Kranthi Bathini, Equity Strategist at WealthMills Securities, said, "We are witnessing a correction in AI and semiconductor stocks globally. India has relatively lower exposure to these segments and appears better insulated from the AI-led sell-off. With crude oil prices below $100 per barrel, a decent earnings season, and the recent correction in large-cap stocks, domestic macros look attractive at this juncture. Indian markets appear well placed among emerging markets despite the global sell-off, over the medium to short term."

Vinod Nair, Head of Research at Geojit Investments, noted, "Indian equities defied a global rout, extending their winning run as investors treated the home market as a relative safe harbour amid turmoil abroad. Wall Street was hammered by a sharp tech sell-off as investors weighed the prospect of tougher regulation under Democrats. Large private banks emerged as the prime beneficiaries, their deep liquidity and attractive valuations making them a natural home for this rotational money."

Nair added, "A sharp weekly slide in crude, easing US Treasury yields and a firmer rupee further burnished India’s relative appeal. With Fed officials still hinting at further hikes, the US jobs report due later today will be closely watched. Still, as Samvat 2082 draws to a close, the market enters the new Samvat with foreign flows, crude and the currency finally pulling in the same direction."