Christopher Wood, the head of equity strategy at Jefferies, suggests that a significant cooling or even a "collapse" of the Artificial Intelligence (AI) investment narrative could lead to a period of outperformance for the Indian equity market.
In an exclusive interview, Wood explained that foreign investors began divesting from the Indian market in early 2023, coinciding with the onset of the AI revolution. This exodus, he clarified, was largely driven by the need to increase allocations to semiconductor companies, particularly those based in Taiwan and South Korea, to capitalize on the burgeoning AI theme. Wood emphasized that this shift had "absolutely nothing to do" with India's inherent market fundamentals.
Before the AI boom captured global attention, India was widely regarded as the premier structural growth story in global equities. However, since early 2023, the intense focus on AI-driven investments has incrementally diluted interest in other markets, including India.
Despite the past reallocation, Wood currently maintains a "marginally overweight" stance on India. He notes that much of the value in the AI trade has already been captured by semiconductor firms. For the Indian market specifically, Wood identifies rising oil prices as the primary risk factor. Conversely, he sees the energy sector as a major investment theme.
Beyond equities, Wood remains bullish on gold and observes signs indicating that the Indian rupee could be nearing a bottom. He also commented on the resilience of US markets, attributing it partly to investors booking profits upfront from semiconductor stocks like Samsung Electronics and NVIDIA, which in turn supports earnings growth.