India’s equity trade is losing its leadership status as global money chases the AI hardware buildout across North Asia. Valuations in Mumbai remain elevated, earnings revisions are no longer outrunning prices, and policy momentum looks less certain. Local Asian market desks are blunt about the rotation. If you are still benchmarking India versus China, you are missing the real switch: India versus the AI supply chain.
Nihon Keizai Shimbun’s morning market dispatch put it plainly: 資金はAI関連に回帰 funds are rotating back to AI plays, highlighting stronger foreign bid for Taiwan and Korea at India’s expense. Caixin described India’s setup as 印度股市估值偏高，外资流出加剧 Indian equities are richly valued; foreign outflows are intensifying. Korea’s Maeil Business Newspaper ran with 외국인 순매도 전환, 인도 비중 축소 foreign investors turn net sellers, cutting India weights. These are not outlier takes; they capture a priority shift on buy-side desks in Tokyo, Seoul, Taipei, and Singapore as AI capital spending climbs and order visibility improves across semis, memory, packaging, and equipment. The tone contrasts with English-language narratives that still pitch India as the default EM overweight on reform and demographics. Local-language editors are watching where the tape is thickest today, not where it might be in 2030.
In recent sessions, India’s Nifty 50 and Sensex have churned, underperforming the TAIEX, KOSPI, and segments of the Nikkei tied to semiconductor capital equipment. The softness is not a crash; it is a steady bleed in active risk appetite. Financials and domestic cyclicals that powered last year’s rally have faded as deposit costs rise and loan growth normalizes. PSU banks and construction-linked names saw profit-taking. Smallcaps, which carried froth after a long retail-led run, have been the pressure point as managers cut high-beta India exposure to fund purchases in AI winners. Indian IT services are a mixed bag: they benefit from tech budgets, but investors are prioritizing silicon and fabs over services. The rupee remains rangebound, cushioning USD returns, and domestic SIP inflows still provide a backstop on down days. But the leadership baton, for now, is with North Asia’s hardware complex.
India’s equity premium has been defended by consistent earnings delivery. That shield is thinning. Consensus upgrades are slowing outside a handful of industrials and utilities, while multiples in several crowded themes remain stretched. By contrast, Korea and Taiwan are printing visible EPS upgrades tied to AI servers, HBM memory, foundry utilization, and power management ICs. Japanese equipment makers adding backlog offer a cleaner transmission from AI capex to earnings than many India-listed plays can show in the next 12 months. Local Chinese commentary has leaned on this spread: 估值需要盈利兑现 valuations need earnings to catch up. The structural India bull case—formalization, digitization, manufacturing push under PLI schemes—is intact, but the earnings slope is flatter in the near term than in the AI supply chain. That is why relative performance is slipping even without an overt shock.
Markets can live with slower growth; they struggle with slower decisions. After the 2024 election whipsaw and a move to more coalition-style governance, local Hindi business pages have stressed, गठबंधन सरकार में सुधारों की रफ्तार सुस्त reform pace is slower in a coalition. That does not imply policy reversal, but it does shift timelines on disinvestment, land and labor tweaks, and state-level execution of capex pipelines. Fiscal math favors steady capex and welfare balancing, not a step-change in infrastructure outlays. The Reserve Bank of India remains committed to disinflation, which keeps real rates supportive but liquidity more selective. None of this breaks the long-term story. It does mean investors are demanding a bit more proof on reforms before paying peak multiples for rate-sensitive lenders, consumer durables, or capital goods names that already banked in two years of optimism.
India’s weight in broad EM indices has climbed on price performance and increased foreign capacity, but the low-hanging fruit from passive reweighting is picked for now. Meanwhile, outperformance has mechanically boosted Taiwan and Korea weights, pulling more passive dollars toward the AI chain. EPFR-style flow trackers across Asia desks talk of steady inflows to North Asia tech ETFs and active mandates topping up semis on every dip. Korean headlines use the phrase AI 대장주 자금 쏠림 money crowding into AI leaders, while Taiwanese market wraps describe 主流資金回流半導體 mainstream money returning to semiconductors. For allocators who keep overall EM risk constant, something has to give. This month, that “something” has been a trim in India overweights rather than cuts in languishing China holdings, because India still has profits to harvest and high-multiple names to fund-switch.
Look at the micro. IT services leaders have stabilized but not re-rated; clients are piloting GenAI, yet large-scale monetization remains back-half and uncertain. Domestic capex champions have order books but are starting from double-digit EV EBITDA multiples that assume flawless execution. Banks face net interest margin pressure as deposit repricing catches up, while unsecured lending curbs from late 2023 still bite at NBFCs. As one Marathi business column put it, आरबीआय ने असुरक्षित कर्जावर ब्रेक लावला the RBI has hit the brakes on unsecured credit. On the other side, Korean memory makers are signaling capacity additions tied to HBM, Taiwanese foundries are telegraphing multi-year capex, and Japanese tool vendors report fuller pipelines. For global funds managing factor exposures, it is cleaner to express AI beta via North Asia hardware than via India’s services or domestic demand proxies at this stage of the cycle.
The bull counterargument is consistent: domestic SIP flows are sticky, India’s household balance sheets are healthier, and corporate deleveraging gives room for another capex leg. All true. But the marginal price setter for index performance, especially on valuation-rich sectors, is still foreign. When local papers in Shanghai and Seoul write 外资调仓 foreigners are reshuffling positions, it shows up in India as fading breakouts and stronger selling into strength, even as retail buys dips. The rupee’s relative stability helps USD investors, yet compresses export tailwinds. Meanwhile, energy and power shortages, grid constraints, and patchy monsoon risks keep a lid on near-term multiples for utilities and staples despite structural demand. The long-duration India growth story survives; the short-duration AI capex surge outpacing it is today’s market math.
English-language coverage frames India as a clean EM alternative to China. The real rotation is not binary EM politics; it is cash moving from expensive, slower-accelerating domestic stories into the fastest earnings upgrades tied to AI hardware. Local Asian media have already moved the conversation there. If you are overweight India, tighten it to where earnings are visible and pricing power is durable—power equipment, grid and transmission, select industrial automation, and specialty chemicals tied to global supply chains. Be cautious on crowded financials and over-owned smallcaps until revisions re-accelerate or multiples reset. Use North Asia for AI beta and keep India as a duration growth hold, not a momentum leader. What is missing in the English read: this is a relative trade driven by earnings timing and index mechanics, not a referendum on India’s fundamentals.
