For much of the last year, global investors have been chasing one theme – Artificial Intelligence (AI). Markets such as Taiwan, South Korea and the United States have attracted massive foreign inflows on the back of this huge interest in AI plays
India, on the other hand, has seen significant Foreign outflows as investors looked for more direct AI-linked opportunities elsewhere.
Yet, according to the recent Motilal Oswal report, this is not as simple as it appears. While AI-heavy markets have shown strong momentum, India’s broader market structure could make it a relatively safer destination if global investment trends begin to shift.
Let’s take a look –
Why India looks different from other Asian, EM peers
According to the Motilal Oswal report, one of the biggest differences lies in sector concentration.
Many global markets are heavily dependent on a handful of sectors. Technology dominates stock market performance in Taiwan, South Korea and the United States, while sectors such as financials and commodities play a larger role in countries like Brazil and China.
Motilal Oswal noted, “The top 3 sectors account for nearly 96% of the MSCI Taiwan Index, 86% in Korea, 68% in Brazil, 64% in China, 60% in Japan, and 58% in the US, compared with only 52% in India.”
According to the report, this makes India one of the more diversified major equity markets globally, reducing dependence on any single theme or sector.
The brokerage believes that this lower concentration risk could become an advantage if enthusiasm around AI-related trades begins to moderate.
Has India underperformed due to absence of adequate AI plays?
The report points out that India has lagged several major global markets over the past year.
According to Motilal Oswal, “MSCI India severely underperformed other key markets in the past one year while it significantly outperformed them before the start of the AI rally.”
The brokerage attributes much of this underperformance to the strong inflows into AI-linked markets such as Taiwan and South Korea.
However, it also argues that a reversal in global investment flows could change the picture.
Motilal Oswal in its report added, “Any reversal or moderation in AI-led trade could significantly benefit the diversified markets such as India.”
In contrast, markets heavily dependent on technology stocks may become more vulnerable if AI-driven enthusiasm cools down.
Valuation correction
Another factor highlighted by the brokerage is valuation.
India saw a meaningful correction after the market peak seen in September 2024. Unlike some global markets where earnings upgrades supported valuations, India’s adjustment came through a combination of lower stock prices and time correction.
Motilal Oswal noted, “Both India and Indonesia witnessed the sharpest valuation corrections, with forward valuations declining 25% and 35%, respectively.”
Despite this correction, earnings growth expectations remain relatively healthy.
According to the report, consensus estimates suggest that Indian corporate earnings could grow at around 14% compounded annually over the next two years.
History suggests current valuations are worth watching
One of the most interesting observations in the report relates to historical market valuations.
Motilal Oswal highlighted that the Nifty 50 has rarely traded below a forward Price-to-Earnings (P/E) multiple of 19 times over the past decade.
The brokerage noted that the index is currently trading at around 18.6 times forward earnings.
According to the report, “History suggests that such valuation dislocations have often created attractive entry points.”
The brokerage further observed that previous periods when valuations fell below this level were often followed by strong market recoveries.
According to the report, “In the 12 months following these sub-19x valuation periods, the Nifty-50 delivered average returns of 34%.”
While Motilal Oswal is not predicting a similar outcome, it believes the current risk-reward profile looks more balanced compared to several global peers.
India’s bond market
The report also highlighted developments in global bond markets.
Rising geopolitical tension and higher energy prices have pushed bond yields higher in several developed economies.
According to the brokerage, the United States 10-year Treasury yield climbed to around 4.4%, while Japan’s 10-year government bond yield touched multi-decade highs.
India, however, has remained relatively stable.
Motilal Oswal noted, “India’s 10-year G-Sec yield remained relatively resilient despite global pressures.”
The report attributes this stability to relatively anchored inflation expectations and confidence in the Reserve Bank of India’s policy framework.
What investors need to watch
According to Motilal Oswal, India’s diversified market structure, recent valuation correction and stable macro environment differentiate it from several emerging markets currently driven by narrow investment themes.
While AI-led markets continue to attract attention, the brokerage believes India’s broader earnings base and sector diversity may offer better balance if global capital flows begin to normalise.
Disclaimer: This article is based on an institutional research report by Motilal Oswal and contains general market analysis, comparative valuation metrics, and historical performance data for informational purposes only. It does not constitute a specific investment recommendation, buy/sell/hold signal, or financial advice. Readers should note that past performance and historical valuation thresholds do not guarantee future returns, and equity investments are subject to market risks. Consult a SEBI-registered investment advisor before making any personal financial decisions.
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