Hello, this is Priyanka Salve writing from Singapore.
Welcome to the latest edition of Inside India. A one-stop destination for stories and developments in the world’s fastest growing large economy.
AI-driven gains in TSMC, Samsung and SK Hynix, along with headwinds from a weaker rupee and Middle East conflict, are reshaping the rankings of Asian markets. This week, we explore how the theme of AI is overtaking India’s consumption story.
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In 2026, Animal Spirit will promote investment in artificial intelligence companies, TSMC, samsung and SK Hynix For over $1 trillion.
This is bad news for India, the world’s fastest-growing major economy, which has yet to leverage AI at scale, especially at a time when demand for domestic consumption is so high, according to experts CNBC spoke to. Households face rising inflation, a weak currency, and a slowdown in quality job creation.
Experts added that falling consumer spending and rising input costs due to the Middle East conflict are also expected to slow corporate profits in the fiscal year ending March 2027, further increasing foreign investors’ desire to exit.
Foreign investors have sold $27.6 billion worth of Indian stocks since January, taking the total to $18.9 billion in 2025, according to data from Indian financial institution NSDL.
Meanwhile, the market capitalization of its Indian peers has soared. On May 26, Taiwan’s market capitalization reached nearly $5 trillion, overtaking India to become the world’s fifth largest stock market. Within a week, South Korea also overtook India, taking it from sixth place to overtaking India, based on data compiled from three exchanges.
The situation appears to have suddenly turned against India.
The closing price of the KOSPI index is displayed on an electronic display in the lobby of the Korea Exchange in Seoul, South Korea on June 1, 2026. The benchmark index rose 312.23 points (3.68%) from the previous session to close at a record high of 8,788.38. (Photo by Chris Jung/NurPhoto, Getty Images)
Null Photo | Null Photo | Getty Images
About 18 months ago, India’s stock market capitalization was 3.5 times that of South Korea and more than twice that of Taiwan, according to a note released Monday by analysts at Bernstein.
Nitin Jain, chief executive officer and director of Kotak Mahindra Asset Management Singapore, said India was one of the best-performing markets for almost a decade until 2024. In less than two years, India’s story “went from a great story to a story no one wants to think about,” he told CNBC.
The story of AI and Indian consumption
AI is a “very strong theme” and investors won’t jump to other markets if companies in this space continue to improve their returns, Jain said.
On a year-to-date basis, South Korea’s Kospi 200 is up over 130% and Taiwan’s FTSE TWSE 50 is up over 60%, outpacing all of its Asian peers. India’s benchmark index, by contrast, is the only index in the red, down more than 10%, according to LSEG data.
Venugopal Ghar, managing director and head of India research at Bernstein & Co., told CNBC’s Inside India on Tuesday that India has fallen behind in the AI space.
India does not have a semiconductor manufacturing ecosystem and on the services side, IT companies are focusing on services and labor arbitrage in new areas that will be risky and capital intensive, Ghale said.
But despite this, experts say lack of play in AI is not the main reason why global investors are exiting India.
Weak revenue cycle
“There is no AI entry in Brazil, but the market is doing well,” said Sridhar Sivaram, investment director at Mumbai-based Enum Securities. He said that despite India’s high valuations, profit growth last year was “very modest”.
According to data from research firm Alpine Macro, Indian stocks are currently trading at a forward P/E ratio of 21 times, similar to Taiwan’s, while Korean stocks are trading at a forward P/E ratio of 9 times.
Meanwhile, global brokerage firm Nomura has cut its consensus profit forecast for the fiscal year ending March 2027 by 4% for the 256 top Indian companies it tracks, mainly due to the impact of the Middle East conflict.
The decline in the popularity of Indian stocks is reflected in the MSCI index, which has shrunk its weight to around 11% from a peak of nearly 20% in 2024.
While an end to the Middle East conflict may ease some of these headwinds, there are also long-term concerns that are undermining investor confidence in India’s consumer trends.
Advances in automation and robotics are “reducing the importance of India’s low-cost workforce as a competitive advantage,” while the rapid adoption of AI “raises questions about the long-term outlook” for some in India’s IT industry, said Yang Wang, chief emerging markets and China strategist at Alpine Macro.
“Even if geopolitical tensions ease, these factors, coupled with still-abundant stock valuations, may continue to limit foreign investors’ enthusiasm,” Wang told CNBC.
need to know
Like Indonesia, India’s central bank may raise interest rates to protect its currency.
With India’s economy facing the dual risks of a weaker currency and higher inflation, India’s central bank may keep its policy rate unchanged, contrary to expectations that it would do so at Friday’s monetary policy meeting.
Coca-Cola considers listing of Indian bottling unit in 2027
The US-based multinational announced on Monday that preparations are underway to list its Indian bottling unit Hindustan Coca-Cola Holdings on the Bombay Stock Exchange and the National Stock Exchange of India in 2027.
very soon
June 5: Reserve Bank of India monetary policy decision.
June 5: India GDP data from January to March.
