Indian equities have staged a powerful recovery after a difficult first nine months of 2026, as global investors move money away from heavily owned artificial-intelligence shares and towards markets with stronger earnings prospects.
The MSCI India index has gained 11% from a six-month low recorded in October. The rebound has added more than US$400 billion to the value of Indian shares and has nearly erased the market’s losses for the year.
India’s comparatively limited exposure to the AI investment boom, which drew substantial international capital earlier in the year, has become an advantage as that trade loses momentum. The change in investor preference has placed India among the strongest-performing major equity markets in the latest phase of the global rotation.
Capital returns to Indian shares
The recovery has been supported by renewed purchases from overseas investors. International funds bought a net US$8.5 billion of Indian equities in November, according to data compiled by Bloomberg. That would make the month the biggest period of foreign inflows in six years if the trend continues.
The fresh buying has narrowed the total amount withdrawn by overseas investors during 2026 to about US$22 billion. Although the annual balance remains negative, the November inflows indicate that some global fund managers are beginning to reassess their exposure to India after a period in which the market lagged other international benchmarks.
| Indicator | Latest figure |
|---|---|
| MSCI India rebound from October low | 11% |
| Value added to Indian equities | More than US$400 billion |
| November foreign net purchases | US$8.5 billion |
| 2026 foreign outflows after November buying | About US$22 billion |
| Size of India’s equity market | US$5.4 trillion |
Why the rotation matters
The shift is not simply a short-term move between sectors. It reflects a broader attempt by global funds to reduce concentration in technology companies whose valuations and performance have been closely tied to expectations around AI. Investors are instead seeking markets where company earnings can provide a more direct support for share prices.
India is benefiting from several factors at the same time. Oil prices have retreated, reducing one of the external pressures faced by the country, while earnings growth is accelerating. The combination has improved the case for Indian equities even as international funds remain broadly underweight in the market, leaving scope for further inflows if sentiment continues to improve.
“We see an improving balance between macro headwinds, portfolio flows and valuations.”
Tan Altundag, an investment manager for emerging equities at Pictet Asset Management in Hong Kong, said the firm had become more positive on India and had increased its exposure in recent weeks. Altundag also said that diversification from a more volatile AI trade could benefit Indian shares.
A test for emerging markets
The rally is also being watched as a possible turning point for emerging-market equities. India is the world’s fastest-growing major economy, and its performance could influence whether investors once again view it as a leading alternative to US technology giants after months of weaker returns relative to global peers.
- Foreign flows: November purchases have provided a significant foundation for the rebound.
- Earnings: Faster growth in company profits is strengthening the investment case.
- Risk diversification: India offers investors an alternative to concentrated exposure to AI-linked technology shares.
The immediate question is whether the renewed buying can continue beyond November. The market’s recovery has been substantial, but India still carries the legacy of sizeable foreign outflows during the year. Its ability to sustain the rebound will depend on the balance between earnings growth, oil prices, valuations and the willingness of global funds to reduce their reliance on crowded technology positions.
For international investors, India’s latest performance shows how quickly market leadership can change when a dominant global investment theme begins to unwind. The country’s lower dependence on the AI trade has not shielded it from volatility, but it has allowed Indian equities to benefit as capital searches for markets supported by underlying economic and corporate growth.
