India's AI gap may turn into upside for investors
Artificial Intelligence (AI) has taken global markets by storm. From chip manufacturers to cloud computing giants, AIrelated companies have attracted unprecedented investment. As AI enthrals capital markets the world over, India finds itself on the sidelines: an economy with brilliant engineering talent but minimal direct exposure to the AI gold rush.
According to PitchBook data, US venture capital funding for AI reached $97 billion in 2024. In the first three quarters of 2025 alone, AI startups attracted $160.8 billion of the $250.2 billion in total US venture funding.
In 2025, AI company valuations in China grew 96%. Taiwan saw record quarterly foreign investment of $15 billion in the third quarter of 2025. South Korea saw its strongest foreign investor positioning in over a decade.
Indian markets’ relative under-indexing to the AI infrastructure story is one of the factors behind sustained foreign portfolio investor (FPI) outflows—around $23 billion in 2024 and around $13 billion so far in 2025—despite relatively strong domestic fundamentals.
Why did our markets not collapse? It was because liquidity from domestic investors absorbed sustained FPI selling. As per data from the Association of Mutual Funds in India in November, monthly systematic investment plan contributions crossed Rs.29,000 crore and the industry’s average assets under management topped Rs.81 lakh crore.
Circular AI funding game
However, the circular economy of AI investing is beginning to resemble a hall of mirrors. A self-reinforcing loop now defines the ecosystem: Nvidia invests in OpenAI; OpenAI uses that capital to buy Nvidia chips; cloud providers partner with OpenAI to expand AI capacity, which further accelerates demand for Nvidia’s hardware. OpenAI’s $300-billion cloud infrastructure deal with Oracle only deepens this circularity.
The parallels to Lucent Technologies’ aggressive supplier and vendor financing at the height of the dot-com boom are hard to ignore.
Market concentration is also at historic highs. Just five companies now account for nearly 30% of the S&P 500 and 20% of the MSCI World Index: double the level of the dotcom bubble in the early 2000s, and the most narrow market leadership seen in 50 years. These indicators are hard to ignore. Big Tech giants have shifted from asset-light platforms to asset-heavy AI infrastructure builders.
The second-order opportunity
This leads to a key takeaway: if global investors redirected capital away from India to markets more closely linked to the AI hardware cycle, then a natural rebalancing could favour India once that phase eases.
Over the past two years, a meaningful amount of capital moved from India to Taiwan, South Korea, and China—markets directly linked to the AI hardware cycle. When that enthusiasm settles, India is well placed to absorb that shifting capital.
In the context of AI, India is emerging as a strong second-order beneficiary of AI. While it may not be building foundational AI infrastructure, it is rapidly emerging as an important participant in the application economy. For instance, Bajaj Finance is leveraging AI to drive growth, lower credit costs and drive internal efficiencies. The company highlights how it internally created a 147-member AI team and how around Rs.4,500 crore has been disbursed based on “Voice AI”.
What it means for your money
Indian markets are set to look very different over the next 5-7 years as business models evolve and new sectors scale. Investors who stay patient through this phase could benefit from one of the strongest mean-reversion cycles in emerging markets.
They must realise that India’s under-representation in a possibly overheated domain creates room for upside when global investors return to fundamentals. Today’s AI penalty becomes tomorrow’s anti-AI positioning. For investors willing to look beyond the current narrative and focus on structural growth drivers, India represents a risk-adjusted opportunity among emerging markets.
Consistent, systematic investment behaviour has been a pillar of market resilience, even during periods of FPI outflows. Instead of trying to anticipate short-term market turns, maintaining a disciplined approach has proven more effective over time. It is also important to assess individual businesses, invest in the long term and be mindful of entry valuations.
For those willing to look beyond the noise, India still offers one of the more attractive risk-reward opportunities today. Sometimes the best place to be is exactly where everyone else isn’t looking. In 2026 and beyond, that place might just be India.
The author is managing partner, principal officer & CIO-AIF, Bay Capital Partners
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
According to PitchBook data, US venture capital funding for AI reached $97 billion in 2024. In the first three quarters of 2025 alone, AI startups attracted $160.8 billion of the $250.2 billion in total US venture funding.
In 2025, AI company valuations in China grew 96%. Taiwan saw record quarterly foreign investment of $15 billion in the third quarter of 2025. South Korea saw its strongest foreign investor positioning in over a decade.
Indian markets’ relative under-indexing to the AI infrastructure story is one of the factors behind sustained foreign portfolio investor (FPI) outflows—around $23 billion in 2024 and around $13 billion so far in 2025—despite relatively strong domestic fundamentals.
Why did our markets not collapse? It was because liquidity from domestic investors absorbed sustained FPI selling. As per data from the Association of Mutual Funds in India in November, monthly systematic investment plan contributions crossed Rs.29,000 crore and the industry’s average assets under management topped Rs.81 lakh crore.
Circular AI funding game
However, the circular economy of AI investing is beginning to resemble a hall of mirrors. A self-reinforcing loop now defines the ecosystem: Nvidia invests in OpenAI; OpenAI uses that capital to buy Nvidia chips; cloud providers partner with OpenAI to expand AI capacity, which further accelerates demand for Nvidia’s hardware. OpenAI’s $300-billion cloud infrastructure deal with Oracle only deepens this circularity.
The parallels to Lucent Technologies’ aggressive supplier and vendor financing at the height of the dot-com boom are hard to ignore.
Market concentration is also at historic highs. Just five companies now account for nearly 30% of the S&P 500 and 20% of the MSCI World Index: double the level of the dotcom bubble in the early 2000s, and the most narrow market leadership seen in 50 years. These indicators are hard to ignore. Big Tech giants have shifted from asset-light platforms to asset-heavy AI infrastructure builders.
- Hyperscaler capex is projected to hit $200-220 billion in 2025, 2.5-times the 2021 levels.
- Training costs for frontier models have soared from $50,000 for GPT-2 to $1-2 billion today. Data centres consume 4% of US electricity and could hit 10% by 2030.
- Much of this build-out is debt-funded, mirroring the telecom-fibre boom.
- An MIT study found that despite $30-40 billion in enterprise generative AI (GenAI) spending, 95% of firms report zero returns.
The second-order opportunity
This leads to a key takeaway: if global investors redirected capital away from India to markets more closely linked to the AI hardware cycle, then a natural rebalancing could favour India once that phase eases.
Over the past two years, a meaningful amount of capital moved from India to Taiwan, South Korea, and China—markets directly linked to the AI hardware cycle. When that enthusiasm settles, India is well placed to absorb that shifting capital.
- India is now the world’s fourth-largest economy and fifth-largest manufacturer, contributing about 9% of global growth and nearly 18% on a purchasing power parity basis.
- Regulators continue to push reforms that boost the financial system and encourage business expansion. ‘Aatmanirbharta’, or self-reliance, has opened opportunities in sectors like electronics, defence, and renewables that were barely on the map a few years ago.
- Valuations have also come back to reasonable levels after the excesses of 2024, creating better entry points for high-quality companies with steady cash flows.
What it means for your money
Indian markets are set to look very different over the next 5-7 years as business models evolve and new sectors scale. Investors who stay patient through this phase could benefit from one of the strongest mean-reversion cycles in emerging markets.
They must realise that India’s under-representation in a possibly overheated domain creates room for upside when global investors return to fundamentals. Today’s AI penalty becomes tomorrow’s anti-AI positioning. For investors willing to look beyond the current narrative and focus on structural growth drivers, India represents a risk-adjusted opportunity among emerging markets.
Consistent, systematic investment behaviour has been a pillar of market resilience, even during periods of FPI outflows. Instead of trying to anticipate short-term market turns, maintaining a disciplined approach has proven more effective over time. It is also important to assess individual businesses, invest in the long term and be mindful of entry valuations.
For those willing to look beyond the noise, India still offers one of the more attractive risk-reward opportunities today. Sometimes the best place to be is exactly where everyone else isn’t looking. In 2026 and beyond, that place might just be India.
The author is managing partner, principal officer & CIO-AIF, Bay Capital Partners
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com)
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