Foreign investors may increasingly turn to India as interest in the Artificial Intelligence (AI) trade in markets like the US, Taiwan, and South Korea shows signs of saturation, according to Harald van der Linde, Head of Asia Equity Strategy at HSBC.
While the AI sector continues to hold growth potential, positioning in leading semiconductor stocks such as SK Hynix and TSMC has become heavy, prompting investors to look for alternative opportunities in Asia. India, with its more attractive equity valuations—particularly in US dollar terms due to the weaker rupee—could emerge as a preferred destination.
Valuation and Currency Dynamics Support the Shift
Van der Linde noted that Indian equities may benefit from favorable entry prices following market moderation over the past 18 months. Additionally, India has entered a rate-cutting cycle, while the US Federal Reserve has not yet eased policy, which could stabilize the rupee and make Indian assets more appealing to foreign investors.
Global Monetary Trends Could Drive Capital Flows
Global interest rate trends will also influence investment patterns. With a new US Fed Chair expected to gradually reduce rates, and Japan maintaining higher rates amid a tight labor market, capital could be redirected toward markets like India. Van der Linde suggested this combination—US easing, Japan tightening—may create an environment where foreign investors increasingly allocate funds to Indian equities as 2026 approaches.
Summary
HSBC expects India to attract more foreign capital as AI-related investment in the US, Taiwan, and South Korea reaches high valuations. Attractive equity pricing, a weakening rupee, and supportive global interest rate dynamics could position India as a key beneficiary of redirected foreign investment heading into 2026.
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