Investors are increasingly reassessing their exposure to the crowded AI trade and the broader technology sector amid growing AI-related uncertainty. These developments could encourage a broader portfolio rebalancing, as investors look to reduce concentration risk and explore opportunities beyond the U.S. technology sector.

India could emerge as a potential beneficiary of this shift. As investors reassess their exposure to the AI trade, India equities could offer an attractive alternative for those seeking geographical diversification beyond technology-heavy markets, potentially positioning the country to attract a greater share of global investment flows.

India Equities Regaining Momentum

Falling crude oil prices, renewed foreign investor interest and an improving earnings environment are providing support to the equity market in India. The country's benchmark Nifty 50 gained 0.84% on Wednesday, taking its gains to approximately 3% over the past five trading sessions and 11.8% over the past month.

India equities, however, faced considerable headwinds earlier in 2026. Their relatively limited exposure to the global AI-led rally, coupled with foreign investor outflows and elevated crude oil prices, contributed to their underperformance. Consequently, the Nifty 50 remains down approximately 3.5% year to date.

However, India's relative underperformance during the global AI-led rally could now work in its favor as investors increasingly explore opportunities beyond crowded technology trades. The benchmark's recent recovery is also reflected in its performance over longer periods, with the Nifty 50 gaining approximately 3.4% over the past three months and 6.4% over the past six months.

Brokerages See Fresh Upside for India Equities

As quoted on Reuters, Moody's has raised India's GDP growth forecast to 7% from 6.5% for the fiscal year ending March 2027, citing broad-based economic growth and the country's resilience to energy supply disruptions caused by geopolitical tensions in the Middle East.

Moody's stated that robust consumption, rising investment and solid macroeconomic fundamentals are expected to underpin India's growth at around 7% over the medium term.

Adding to the positive sentiment, Citi and HSBC have also turned more bullish on India. As quoted on another Reuters article, Citi has raised its end-2027 Nifty 50 target to 28,000, marking an increase of about 10.9% from its current level. Citi sees scope for a broader shift in global asset allocation as AI spending becomes more measured. It estimates that a 100-basis-point increase in India's active weight among emerging-market fund managers could attract approximately $12 billion in inflows.

HSBC believes resilient corporate earnings, strong bank credit growth and measures to support the Indian rupee have made the country’s equities more attractive following their underperformance relative to emerging-market peers this year.

Global Capital Finds Its Way Back to India

Foreign portfolio investors have purchased $5.68 billion worth of India equities in November, already marking their largest monthly buying since September 2024, as per Reuters. The renewed inflows helped lift India stocks to an eight-month high on Wednesday, as easing crude oil prices and concerns over AI-related investments encouraged foreign investors to return to the market following nearly two years of sustained outflows.

The Bullish Case Comes With a Few Caveats

India's growth story, however, is not without near-term challenges. As a major crude oil importer, the country remains vulnerable to fluctuations in global oil prices. Persistent geopolitical tensions in the Middle East could keep crude oil prices elevated, adding to inflationary pressures, widening the current account deficit, weakening the rupee and potentially weighing on economic growth.

However, India's efforts to increase investment in clean energy infrastructure could help reduce its dependence on imported fossil fuels over the longer term and mitigate some of these risks.

Trade restrictions, global economic uncertainty and geopolitical tensions could weigh on investor sentiment toward India equities. However, the Democratic Party's sweeping midterm victory and the ongoing trade negotiations between New Delhi and Washington to finalize the first tranche of a bilateral trade agreement could help ease trade uncertainties and support India's economic outlook.

Exploring India ETFs

Against this backdrop, India ETFs could offer an interesting geographical diversification opportunity amid AI-related market volatility. However, investors should maintain a long-term investment horizon to capitalize on the country’s structural growth prospects.

Investors can consider iShares MSCI India ETF (INDA Quick QuoteINDA - Free Report) , WisdomTree India Earnings Fund (EPI Quick QuoteEPI - Free Report) , Franklin FTSE India ETF (FLIN Quick QuoteFLIN - Free Report) , iShares India 50 ETF (INDY Quick QuoteINDY - Free Report) , Goldman Sachs India Equity ETF (GIND Quick QuoteGIND - Free Report) and First Trust India NIFTY 50 Equal Weight ETF (NFTY Quick QuoteNFTY - Free Report) .

INDA has gathered an asset base of $6.49 billion, the largest among the other options. Regarding annual fees, FLIN is the cheapest option, charging 0.19%, which makes it more suitable for long-term investing. With a one-month average trading volume of about 7.54 million shares, INDA is the most liquid option.

Financials is the largest sector allocation across all the aforementioned funds. INDY has the highest exposure to the sector at 38.1%, while NFTY has the lowest at 24.59%. Consumer discretionary ranks as the second-largest sector holding across the funds, with a double-digit allocation, except for EPI, where energy takes the second spot.

Notably, all the funds have single-digit exposure to information technology, with NFTY allocating the highest share to the sector at 8.78%.