As Dario Amodei, Sam Altman, and Elon Musk signal a cautious pause in the artificial intelligence spending boom, global market strategists are reassessing emerging market exposures. According to Jefferies’ Head of Global Equity Strategy Chris Wood, a cooling AI trade could prompt institutional investors to redirect capital back into Indian midcap equities, driven by domestic credit expansion and robust corporate earnings growth.
The AI Trade Reaches an Inflection Point
For months, the global technology sector has driven emerging market allocations through hardware heavyweights. The trio of major AI-linked chipmakers—Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), Samsung Electronics (KRX: 005930), and SK Hynix (KRX: 000660)—collectively commands a 29% weighting in the MSCI Emerging Markets Index.
However, recent commentary from leading AI executives points toward a coordinated slowdown. Wood outlines two plausible explanations for this shift: either tech giants are establishing a strategic regulatory moat against potential restrictions on Chinese open-source models, or computing costs are becoming economically unsustainable as model capabilities begin to plateau. Regardless of the driver, a contraction in the tech-heavy trade exposes vulnerabilities in concentrated portfolios.
The Bottom Line
- AI Concentration Shift: Major AI hardware suppliers currently make up 29% of the MSCI Emerging Markets Index, overshadowing India’s 11% share.
- Domestic Resilience: Indian bank credit expanded 19.1% year-on-year by the end of August, underpinned by accelerating corporate and SME lending.
- Midcap Outperformance: The Nifty MidCap 100 Index has surged 95% since January 2023, trading at 26.3 times forward earnings compared to 17.3 times for the benchmark Nifty.
Decoding India’s Domestic Growth Engine
When capital rotates away from tech hardware, investors look for structural macroeconomic depth. India’s domestic economy continues to display fundamental strength despite geopolitical volatility and rising energy costs.
Credit metrics underline this resilience. Bank credit grew 19.1% year-on-year at the close of August, while corporate lending rose 21.6% in July. Furthermore, loans directed toward micro, small, and medium industrial enterprises increased 24.9%, signaling that recent structural reforms and administrative measures are yielding tangible business activity.
Here is the math: Jefferies projects real GDP growth to print between 6.5% and 7% for the current fiscal year, with nominal growth tracking near 11% to 12%. Mahesh Nandurkar, Jefferies’ head of India research, anticipates corporate earnings growth accelerating from 14% this fiscal year to 17% in the next.
Evaluating Valuation Realities in Midcaps
Global allocators shifting focus toward Indian equities face a distinct valuation landscape. While the benchmark Nifty has declined 10.9% year-to-date, the Nifty MidCap 100 Index has gained 1.5% over the same period, bringing its total gain to 95% since the beginning of 2023.
| Index / Metric | Performance (YTD 2026) | Gain Since Jan 2023 | 12-Month Forward P/E |
|---|---|---|---|
| Nifty Index | -10.9% | +29% | 17.3x |
| Nifty MidCap 100 | +1.5% | +95% | 26.3x |
| MSCI Emerging Markets (AI Trio Weight) | N/A (29% Index Weight) | N/A | N/A |
This outperformance places the Nifty MidCap 100 at 26.3 times 12-month forward earnings, significantly richer than the broader Nifty valuation of 17.3 times. Yet, Wood notes that this market breadth is structurally healthy, driven by a deep reservoir of entrepreneurial talent that prevents excessive concentration among the top 20 corporate entities.
Consumer Credit and the Energy Shock Variable
Domestic capital flows provide a steady cushion against foreign institutional outflows. Net inflows into domestic equity mutual funds have averaged Rs 38,800 crore monthly through the year. However, this liquidity faces absorption from a surging primary market, with monthly equity supply climbing to $9.5 billion in August from just $1 billion in April.
Beyond traditional equities, the organized gold-loan market is emerging as an alternative driver of liquidity. With household gold holdings valued at $3.9 trillion at the end of March and organized gold loans reaching $197 billion—growing at an annualized rate of 32% over three years—banks are tapping into a profitable lending channel while supporting consumer liquidity at a conservative loan-to-value ratio below 60%.
Nevertheless, macro risks remain visible. The primary external vulnerability for the Indian economy centers on energy supply chains. Disruptions in the Red Sea and the Strait of Hormuz have driven Brent crude to $106 a barrel, creating a challenging backdrop for net importers. While India has managed price exposure by expanding discounted Russian crude imports from 20% in February to over 50% in July, energy inflation remains the primary monitorable for institutional strategists.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
