A sell-off in global artificial intelligence (AI) stocks may not necessarily bring foreign investment into Indian equities, according to Bernstein, which has questioned the assumption that capital moving out of the AI trade would automatically flow into markets such as India.
In a November 2 note, the brokerage said nearly $350 billion in private AI investments and $600 billion in corporate AI spending cannot be treated as capital available for redeployment. Much of this money is committed to venture investments, spending by large technology companies and project financing.
A decline in AI stock valuations would erode investors' paper wealth rather than release an equivalent amount of cash. Companies reducing AI expenditure could use the savings to strengthen cash flows, repurchase shares or repay debt, while investors unwinding leveraged positions may need the proceeds to meet financing obligations.
For India to benefit, investors would first have to exit AI stocks, retain the proceeds for reinvestment and then choose Indian equities over other markets. Bernstein said there was little basis for assuming that this would happen.
Foreign outflows offer little evidence of a shift towards India