Key Points:
- India stock market is gaining attention as a hedge for 2026 due to low AI exposure, fair valuations, and resilient domestic growth.
- Strong performance from banks, consumer, and service sectors, along with policy support and solid demand, adds stability.
- Limited reliance on AI stocks helps protect India from volatility if the global AI trade cools.
MUMBAI, India, Dec. 15, 2025 — India stock market is emerging as a favored hedge for global investors heading into 2026 as concerns grow over a potential artificial intelligence–driven equity bubble, with fund managers citing lower AI exposure, easing valuations and resilient domestic growth.
India is drawing renewed interest from global asset managers seeking diversification as the once-dominant AI trade shows signs of fatigue. After trailing major peers in 2025, Indian equities now trade close to their five-year average valuations, making them more attractive relative to technology-heavy markets.
Several major investment firms expect a rebound next year. Aberdeen Group Plc, Principal Asset Management Co. and Eastspring Investments say the India stock market’s low correlation with AI-linked stocks could cushion portfolios if global tech shares stumble. Strategists at HSBC Holdings Plc and Jefferies Financial Group Inc. share similar views.
“India can be a good diversifier for portfolios in 2026 as it has low correlations with other markets,” said Raj Singh, a multi-asset manager at Principal AMC. “Any pause in the AI trade will likely see money flowing into India.”
India’s equity gains are largely driven by banks, consumer companies and service firms, rather than a narrow group of technology leaders. Fund managers say that composition reduces exposure to sharp swings tied to a handful of AI winners dominating U.S. markets.
Domestic Demand Anchors Market Optimism
Investors point to India’s consumption-led economy as a stabilizing force for the India stock market. Corporate earnings are showing signs of stabilization, while domestic liquidity remains strong. Recent tax cuts, labor law reforms and supportive government policies have reinforced confidence in medium-term growth.
The broader economic backdrop is also supportive. India’s economy grew 8.2% in the latest quarter, and the central bank has cut interest rates to support activity. A potential trade agreement with the United States is seen as another positive catalyst for exporters and manufacturers.
“India’s a good diversifier at this time,” said Christina Woon, a portfolio manager at Eastspring Investments. “Investors can tap domestic growth drivers, with earnings expectations still more reasonable than in many other markets.”
Jefferies expects the India stock market to outperform if global AI enthusiasm peaks, naming Axis Bank Ltd., Bharti Airtel Ltd., and TVS Motor Co. Ltd. as preferred picks due to attractive valuations and earnings visibility.
Limited AI Exposure Seen as Advantage
Unlike the United States, India lacks major pure-play AI companies such as Nvidia Corp. It also has minimal exposure to chip design, manufacturing and equipment, which limits direct participation in the AI boom but shields the market from its volatility.
Big Tech firms Amazon.com Inc. and Microsoft Corp. recently announced combined investments of $52 billion in India, much of it aimed at AI infrastructure. However, early AI initiatives at Tata Consultancy Services Ltd., India’s largest IT services firm, have generated muted investor response so far.
By contrast, China’s equity market offers more direct AI exposure through companies such as Tencent Holdings Ltd., Alibaba Group Holding Ltd. and listed chipmakers. While that provides upside leverage, it also ties returns closely to sector swings and policy risks.
“India could surprise next year after a lackluster 2025,” said Jerry Goh, investment director of Asian equities at Aberdeen. “We are positioning in areas where valuations look relatively more attractive.”
As investors reassess concentration risks globally, the India stock market—supported by domestic demand, moderate valuations, and limited AI dependence—is increasingly seen as a defensive play heading into 2026.
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