In a surprising turn of events, India's Nifty and Sensex indices demonstrated remarkable resilience on Friday, trading in positive territory even as an AI-led global selloff erased over $2 trillion from Wall Street alone. This performance comes amidst growing expectations of a 'reverse AI' trade gaining momentum, potentially redirecting emerging market (EM) inflows towards India.
Indian Market Resilience Amidst Global Turmoil
The BSE Sensex was up 150.29 points (0.19%) at 79,460.30, while the Nifty was marginally down 20.50 points (0.08%) at 24,516.10. This stability contrasted sharply with a widespread rout across Wall Street and Asian markets, where fears of a moratorium on new artificial intelligence and technology data centers, following Democratic gains in US midterm elections, triggered a massive selloff.
V K Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that while the bloodbath impacted most global markets, India was the least affected. Provisional data further supported this positive sentiment, showing foreign portfolio investors (FPIs) bought stocks worth Rs 13,801.83 crore on Thursday alone.
The 'Reverse AI' Trade and IT Sector Boost
A key factor contributing to India's outperformance is the anticipated 'reverse AI' trade. With AI-heavy markets experiencing significant declines, analysts believe India may soon see higher allocations in emerging market inflows. IT stocks, perceived as primary beneficiaries if AI-related investments slow down globally, led the gains.
- M&M surged 3.68% to Rs 3,242.60.
- Titan Company Ltd added 2.32% to Rs 4,946.90.
- Bharti Airtel Ltd, HCL Technologies Ltd, Tata Consultancy Services Ltd (TCS), and Infosys Ltd all saw gains between 1.5% and 1.85%.
These gains were partly fueled by better-than-expected Q2 results from companies like M&M and Titan.
Global Selloff: The AI Data Center Moratorium Concern
The global selloff was largely triggered by concerns over a potential slowdown in data center spending. Nasdaq, for instance, plunged 5.6% overnight, wiping out $2.3 trillion in value in its worst trading session since March 2020. Korea’s Kospi hit its circuit breaker, falling 8.8%, while Japan’s Nikkei declined 5.7%.
"The big rout of 5.6 per cent in Nasdaq was triggered on concerns of big slowdown in data centre spending since the Democrats are opposed to massive data centre investment. This tech rout, particularly the sharp deceleration in AI trade will turn out to be beneficial for India," said V K Vijayakumar.
Analysts highlighted that high interest rates, elevated oil prices, and mixed Q3 results from US AI companies have already weighed on global equities. The Democratic gains in US midterm elections fueled fears of tighter AI-related regulation and potential moratoriums on new data centers, impacting investor confidence in massive AI investment commitments.
Is a Federal AI Data Center Moratorium Likely?
While concerns about a federal AI data center (AIDC) moratorium are significant, Nomura suggested a "temporary pause" at the state level is more plausible than a permanent federal ban. Mainstream Democrats are not fundamentally opposed to AI but raise questions about power costs, oversight, semiconductor supply to China, and export controls.
Nomura noted that candidates campaigning on a 'temporary pause' won in states like Texas and Georgia, while no governor-elect in major data center states has pledged a permanent ban. Permanent bans are currently limited to some local ballot measures.
Outlook for Indian Markets
The ongoing rally in Indian markets, particularly in large-cap stocks, is fundamentally supported by impressive earnings growth that has exceeded expectations. Hariselvan Radhakrishnan, Founder & CEO of HST Wealth, cautioned that while India might be less impacted initially, sustained global deleveraging could eventually affect domestic sectors through foreign selling, even without a direct earnings impact.
Despite potential short-term weakness, the continued FII buying in a changed global market construct is expected to keep the Indian market resilient, with more upside projected for financials, tech, and auto stocks.