Indian stocks are staging a strong recovery as global investors reduce exposure to crowded artificial intelligence trades. The MSCI India index has rebounded 11% from its six-month low in October, adding more than USD 400 billion in market value and nearly erasing this year’s losses.
The rally marks a sharp reversal for Indian equities. During the first nine months of 2026, global capital flowed heavily toward AI-linked markets, leaving India behind. Now, India’s limited direct exposure to the AI theme has become a key advantage.
Improving corporate earnings have strengthened the investment case for India. Nifty 50 earnings are expected to rise about 18% year on year in the September quarter, compared with 13% growth in the previous quarter.
Valuations also look more supportive. MSCI India trades at about 20 times forward earnings, below its five-year average. This combination of earnings growth and reasonable pricing has encouraged foreign portfolio managers to rebuild positions.
Lower crude prices have added another tailwind. Brent crude has fallen more than 18% from its October 30 high, easing cost pressures for India, which imports nearly 90% of its energy. Falling oil prices reduce inflation risks and support corporate margins. They also improve India’s external balance and give policymakers greater room to support growth.
The current move is often described as a “great rotation.” Investors are shifting money away from concentrated AI and technology bets toward markets with improving earnings, more reasonable valuations and lower exposure to the AI theme. India still trails regional peers in 2026; the MSCI India index was down 2.2% year to date, while the broader MSCI regional benchmark had gained about 12%.
India’s recovery rests on two pillars: a flow-driven shift away from AI concentration and improving domestic fundamentals. If earnings growth continues and foreign inflows remain strong, Indian equities could extend their recovery.
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