Indian Stocks Lag Global Peers Amid AI Boom, Long-Term Outlook Positive

Indian equities have notably underperformed major global markets over the last year, a trend highlighted by a recent study from Abakkus Investment Managers. This lag is primarily attributed to a significant global reallocation of investor capital towards opportunities linked with artificial intelligence.

Global Returns Disparity

• The Nifty 50 TRI registered a -0.4% one-year return as of June 30, 2026.
• South Korea’s Kospi surged 103.2% during the same period.
• Taiwan’s TAIEX saw an 83.2% increase.
• Japan’s Nikkei advanced by 56.7%.
• The US Nasdaq posted a 20.1% gain.

The underperformance in India stems from its limited exposure to critical sectors like semiconductor manufacturing and AI hardware. Additionally, concerns about AI-led disruption impacting large Indian IT services companies have weighed on sentiment.

Factors Pressuring Indian Markets

• Reduced exposure from Foreign Institutional Investors (FIIs) due to global capital reallocation.
• Geopolitical uncertainties and tariff concerns influencing investor decisions.
• Rupee depreciation impacting foreign investor returns.
• Valuation compression in large-cap stocks despite robust underlying businesses.
• Broader geopolitical tensions affecting capital flows.

Despite these immediate pressures, Abakkus Investment Managers maintain a definitively positive long-term outlook for India. The country’s market structure is seen as robust, characterized by a highly diversified sector composition.

India’s Structural Strengths

• Strong domestic demand continues to drive economic activity.
• Favorable demographics provide a sustained consumer base and workforce.
• Ongoing infrastructure development fuels growth across sectors.
• Economic formalization enhances transparency and efficiency.

The study suggests a potential rotation of global capital away from current AI-linked markets, which could lead FIIs to consider fresh allocations to India within the next 6-12 months. Robust domestic inflows, propelled by mutual funds and Systematic Investment Plans (SIPs), continue to bolster the mid-cap and small-cap segments.

Improving External Liquidity

• Moderating dollar outflows due to reduced energy and precious metal imports.
• Reserve Bank of India (RBI) initiatives actively support foreign currency inflows.
• A stable or strengthening rupee could significantly enhance dollar-denominated returns for foreign investors.

These combined factors are expected to renew global interest in Indian markets, reinforcing the positive long-term investment narrative despite recent short-term underperformance against AI-driven global peers.