India’s Appeal Grows as FOMO-Driven AI Trade Unwinds in Asia

India Back in Favour as Asia's AI FOMO Trade Hits a Wall

India is regaining its lustre for global investors just as the fervent chase for artificial intelligence-linked stocks in Korea and Taiwan is running out of steam. Sachee Trivedi, founder of Trident Capital Investments, argues that the sell-off in AI supply-chain names is a classic 'FOMO' (fear of missing out) trade unwinding. Korean retail investors had piled into derivatives on a handful of semiconductor giants, ignoring valuations, and the subsequent volatility has burned many. Meanwhile, the Indian market, which foreign investors shunned in late 2024 when it traded at 24 times forward earnings, has corrected to roughly 20 times—a level Trivedi calls comfortably attractive.

The rotation out of India was partly a simple relative-value trade: money chased the AI narrative where single-digit valuations in Korea seemed irresistible compared with India’s rich multiples. That gap has now narrowed dramatically. While the AI capex story continues, cracks have appeared as companies like Meta and Google report steep cash-flow drops amid billions in spending, raising the very questions Trivedi says forced a reality check. At the same time, the absence of an AI chipmaker or foundational model in India—often seen as a structural weakness—may now be its hidden strength, offering a diversifier for portfolios heavily exposed to the AI hardware cycle.

Behind the Shift: Why India’s ‘No-AI’ Story Is Becoming a Blessing

The AI Supply-Chain Sell-Off: More Than Just a Correction

Trivedi draws a sharp distinction between betting on a country and betting on a company. The Korean and Taiwanese market meltdowns were driven by concentrated bets on one or two names that had become ‘no-price-too-high’ trades. When corporate results showed free cash flows almost evaporating relative to massive capex plans, the market questioned the near-term return on that investment. The SOX semiconductor index’s 26% decline reflects a broader repricing of the AI supply chain, suggesting the FOMO phase is turning into a more discerning allocation of capital.

India’s Valuation Floor Is Now Higher—and That’s a Good Thing

Post-Covid, a structural buyer has emerged in India: the systematic investment plan flows that channel retail savings into mutual funds. This consistent domestic bid has effectively raised the floor for Indian equities. While multiples are down from their 2024 peaks, they are unlikely to revisit the lows seen in 2014–15, because the liquidity landscape has permanently changed. Trivedi notes that for most companies, valuations are now around 2019–2020 levels, offering an entry point that didn’t exist six months ago.

Why the Absence of an AI Model Could Be India’s Great Diversifier

The contrarian heart of Trivedi’s thesis is that India’s lack of a homegrown foundation model or chip factory becomes an advantage when the AI hardware trade wobbles. If global investors begin to rotate out of concentrated AI bets, India—with no such exposure—acts as a ready-made hedge. Moreover, he points to India’s proven ability to adapt technology, not just make it. Just as the country leapfrogged landlines with mobile and built a world-leading digital payments infrastructure on top of foreign tech, he believes Indian firms and engineers can become the hotbed for AI applications that will generate value long after the copper-wire phase of the supply chain has faded. The US tech giants ultimately need large, receptive markets, and India’s openness to American platforms—unlike China—makes it indispensable.

The Double Whammy: Iran Conflict and US Rate Hike Fears

Even with the relative attractiveness, two near-term headwinds persist. First, the Iran war introduces a geopolitical risk premium; any sign of a ceasefire immediately brings back FII trickles, but every escalation pushes money into safe havens. Second, and more structurally, the US inflation picture has flipped from expecting rate cuts to now debating a rate hike. Higher US rates traditionally drain capital from emerging markets, and Trivedi warns that until this uncertainty resolves, FII flows to India will remain tentative. The rupee’s persistent slide—about 28–30% in five years—further erodes returns, though the RBI’s glide-path management has kept volatility in check better than many peer currencies.

What Global Fund Managers Should Watch Next

• Investors should differentiate between Indian equities that are direct plays on domestic structural demand (beneficiaries of SIP flows) and those reliant on global tech spending, where AI disruption creates puts and takes that vary stock by stock.
• Watch the Iran ceasefire talks and US CPI prints: a meaningful de-escalation or softer inflation could trigger a rapid FII return to India, particularly in rate-sensitive sectors like banks and real estate, as the valuation gap with Asian peers has narrowed.
• Rupee hedging through non-deliverable forwards or India’s own debt instruments (like FCNR deposits) is becoming essential; the RBI’s incremental steps have dampened volatility but a 28–30% five-year depreciation demands active management for dollar-based investors.
• The IT services sector may face near-term earnings pressure from AI substitution, but the same technology could create vast new pools of work as India’s own AI applications scale—a story global investors are only beginning to price in, just as they did with mobile fintech a decade ago.