After months of relentless foreign selling and a prolonged spell of underperformance, Indian equities have staged a sharp turnaround in November. Three developments are coming together to drive the recovery: a reassessment of the crowded global AI trade, a sharp reversal in foreign flows and a better-than-expected September-quarter earnings season.
The first two are changing the flow of global capital. The third is strengthening the case for investing in Indian equities.
The US midterm election outcome has eased some policy uncertainty and strengthened expectations of lower bond yields. The US benchmark yield has retreated since the verdict, adding to the appeal of non-US assets.
The scale of global exposure to the US makes this shift significant. The country accounts for around 65% of global market capitalisation, against about 30% of global GDP. Foreign investors already hold $24-25 trillion more in US assets than Americans hold overseas. With investors reassessing their exposure to US assets, other markets could benefit from a diversification of portfolios.
Separately, doubts over the returns on massive AI infrastructure investments, data-centre spending and stretched valuations are prompting investors to trim crowded positions.