India May Attract Global Investors As AI Bets Cool, Driven By Strong Domestic Growth

As enthusiasm around AI bets cools globally, India’s relatively low exposure to the sector is positioning its equity markets as an attractive alternative for foreign investors. After years of heavy investment in computing and AI infrastructure worldwide, global funds are beginning to reconsider markets that offer long-term growth driven by consumption rather than technology cycles. This shift could help reverse last year’s outflow of roughly $21 billion in foreign capital from Indian equities. Early signs of a turnaround are already visible, with net foreign purchases returning in February.
Market participants say India’s growth narrative, supported by favourable demographics, expanding consumption, and policy continuity, continues to stand out globally. Fund managers argue that the country’s next phase of expansion will be powered by emerging sectors that could become major businesses over time, even if that momentum is not yet fully reflected in benchmark indices.
Currency stability and improved trade developments have also supported sentiment. While major global tech-heavy indexes have declined after peaking, India’s benchmark markets have shown comparatively smaller losses, reinforcing the perception of resilience.
Optimism is underpinned by India’s nearly $4-trillion economy, which is projected to grow about 7.4% in the current fiscal year, followed by growth in the high-6% to 7% range over the next two years. Consumption remains the key engine — a factor investors view as less vulnerable to global AI cycles or external trade shocks.
Global investors note that India’s diversified growth profile and strong domestic flows make it an increasingly compelling destination for capital allocation. This trend may intensify as portfolios rotate away from US-centric AI trades toward markets offering structural, consumption-led expansion.
However, risks remain. Indian equities trade at a premium to many emerging markets, and any slowdown in growth could challenge valuations. The recent selloff in IT services, hit by global AI-related concerns, highlights the uneven impact across sectors.
Even so, many investors view the higher valuations as justified by India’s consistent growth outlook and long-term economic momentum. As global portfolios rebalance after the AI rally, India is increasingly emerging as a preferred market supported by domestic drivers and sustained expansion potential.