Archive · 17 Nov 2025
India's Equity Market: A Relative Safe Haven Amid US AI Bubble Concerns
Imagine the stock market is like a big playground.
Right now, a lot of people are excited about a new game called 'AI' in the United States, making its prices go up really high, maybe too high.
This is like a bubble that might pop.
When this happens, money might move away from countries like Korea and Taiwan.
But India is like a sturdier part of the playground.
It has many local players (investors) who don't get too worried about prices, and its own games (economy) are growing steadily.
So, even if the US 'AI' game gets shaky, India is expected to be a more stable place for money to be, especially with its own government planning to lower interest rates.
This means companies that sell things people want to buy and banks could do well, though some IT companies might surprise positively.
The main worry globally is if the US 'AI' excitement is too much and leads to everyone selling stocks.
India's equity market seen as a relative safe haven due to US AI bubble and global flow uncertainties
Expected to benefit from potential capital rotation away from North Asian markets if US AI premium cools
Deep domestic investor base and structural growth are key strengths, making it less sensitive to valuation metrics
US market faces risks from an overvalued AI sector, with potential for a correction in early 2025
India entering a rate-easing cycle, supported by softer inflation and expected Fed rate cuts, favoring domestic cyclicals
- Who
- Alexander Redman, Chief Global Equity Strategist at CLSA
- What
- India's equity market is emerging as a relative safe haven due to uncertainties surrounding the US AI bubble and global capital flows, with CLSA maintaining an overweight stance.
- When
- The analysis discusses current market conditions, potential market corrections in early 2025, and future outlook for 2025.
- Where
- India, North Asia (Korea and Taiwan), and the US.
- Why
- India is seen as relatively safer due to its deep domestic investor base, structural growth, policy stability, and potential to benefit from a rotation of capital if the US AI premium cools. Global markets face risks from an overvalued US tech sector and the AI bubble.
India as a Relative Safe Haven
Global Market Uncertainties and AI Bubble Risks
Investor Flows and Market Performance
India as a Relative Safe Haven
India is expected to benefit on a relative basis compared to North Asian markets due to its deep and sticky domestic investor base, which is less sensitive to valuations. Even if the US AI bubble bursts, India is likely to perform better than Korea and Taiwan.
Global Market Uncertainties and AI Bubble Risks
The global market faces uncertainty from the US tech cycle and the AI premium. A disruptive burst of the AI bubble could lead to widespread selling, although North Asian markets will bear the brunt. India's own market has seen significant foreign selling in the past and its performance is dependent on the evolution of the global AI trade.
Valuation and Investment Strategy
India as a Relative Safe Haven
Despite elevated valuations, CLSA maintains a modest overweight on India, seeing potential for increased positions if North Asian markets unwind. India is viewed as a reliable relative outperformer due to domestic liquidity, structural growth, and policy stability.
Global Market Uncertainties and AI Bubble Risks
US markets are considered overvalued due to the AI premium, with significant investments in AI yielding negligible revenue so far. Concerns exist about monetization, aggressive depreciation cycles, rising competition, and escalating financing costs, which could lead to a market correction in early 2025.
Drivers of Indian Equities
India as a Relative Safe Haven
The primary drivers for Indian equities are domestic flows and structural growth, with 85% of the market held by local investors who are less concerned with P/E ratios. Foreign flows are becoming less relevant due to strong domestic inflows and capital controls.
Global Market Uncertainties and AI Bubble Risks
While domestic factors are strong, the global AI trade evolution and US tech cycle remain critical uncertainties that could impact foreign investment and overall market sentiment.
- CLSA Stance on India
- Modestly overweight (15%), with potential to increase to 25%.
- Primary Drivers for Indian Equities
- Domestic investor flows and structural growth.
- Domestic Investor Holding
- 85% of the market.
- Domestic Monthly Inflows
- Approximately Rs 3.5 lakh crore.
- Global Uncertainty
- US tech cycle and AI premium in valuations.
- US AI Investment
- Crossed roughly $1.5 trillion with negligible revenue so far.
- Potential Market Correction
- Sometime in early 2025 (probabilistic guess).
Sources
Rupee bottomed out after being worst EM performer in 2025: Jefferies report
India's Forex Reserves Drop Further, By $2.7 Billion To $687 Billion
Why rupee depreciation makes global investment diversification crucial for Indians - Telegraph India
Rupee falls 6 paise to 88.72 against US dollar in early trade
Rupee falls 6 paise to 88.72 against US dollar in early trade
GREED & fear: India still a ‘relative-return disaster’ even as rupee bottoms, says Jefferies’ Chris Wood
Inside Chris Wood’s portfolio: 9 Indian stocks in focus from Jefferies’ new ‘Greed & Fear’ report
After a year of heavy FII exits, Goldman Sachs sees a cleaner entry point for India
Jefferies sees value in real estate, calls IT a weak link in India’s overheated equity market
As US AI bubble swells, India emerges as EM’s relative safe haven: CLSA