‘AI bubble bursting may be India’s shot at global investment revival’

India may attract some foreign capital in the event of the “Artificial Intelligence bubble” , which is driving outperformance in AI company stocks in developed economies and some emerging economies, bursting, according to experts. 

The market capitalisations of companies with substantial AI investments have increased sharply in developed and some developing economies leading to what some experts feel is a bubble—a phenomenon where the price of the asset far exceeds its intrinsic value. 

“Our analysis of the market cap. of top-25 Indian stocks over the past three years shows that the Indian market continues to be dominated by traditional (or even sunset) sectors. The lack of integration of India with the global-AI value chain and high valuations for most sectors and stocks in India have resulted in India being a natural funding market for AI-theme-driven global capital flows” said Kotak Institutional Research in a report. “The market’s expectation of Indian stocks appears to be driven solely by expectations of industry growth led by per capita income growth,” the report read.

KIE is not alone in this assessment. “Global AI exuberance is palpable, and it seems India, at this stage, is at a distinct disadvantage in the AI ‘revolution’, although eventually the technology hype curve vs India’s catch-up and positioning in this curve will be critical for investors,” said Yogesh Aggarwal, Head of Research, HSBC. 

The comment assumes significance when the foreign portfolio investors have sold about ₹1.39 lakh crore in Indian equities as of October 2025 in the current calendar year. The chief reason that experts cite is the higher valuations and tepid growth in profit in the past six to eight quarters. Lack of AI investment is now an additional reason behind the selling, according to the new research. 

“India’s best hope to regain interest from global risk capital could be a deflation of the AI bubble. Most observers agree about a bubble, but there is no consensus on the duration and magnitude or even the nature of the bubble,” the Kotak study found.