Hello, this is Priyanka Salve, writing to you from Singapore.
Welcome to the latest edition of the “Inside India“ — your destination for news and developments from the world’s fastest growing economies.
AI-driven gains at TSMC, Samsung and SK Hynix, along with a weak rupee and headwinds from the Middle East conflict are reshaping the Asian market. This week, I explore how the theme of AI highlights India’s consumption story.
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It’s a big story
In 2026, animal spirits are driving investments in artificial intelligence companies, valuing stocks like TSMC, Samsung again SK Hynix with more than billions of dollars.
In the world’s fastest-growing economy, India — which doesn’t have a big AI game — this is bad news, especially at a time when its most sought-after home consumption story is cracking, according to experts CNBC spoke to. Households are facing high inflation, weak money, and declining job creation.
This drop in consumer spending and an increase in input costs due to the conflict in the Middle East is expected to drag down corporate earnings in the fiscal year ending in March 2027, experts said, adding that it made foreign investors even more eager to exit.
Foreign investors sold $27.6 billion worth of Indian stocks since January, compared to a total of $18.9 billion by 2025, according to data from India’s NSDL.
Meanwhile, India’s peer market capitalization is growing. Taiwan’s market average touched nearly $5 trillion as it overtook India to become the world’s fifth largest market on May 26. Within a week, South Korea also pushed ahead of India, toppling it from sixth place, based on data compiled from three exchanges.
It seems the tables have turned for India, a lot.
An electronic display shows the closing KOSPI index inside the entrance hall of the Korea Exchange in Seoul, South Korea, June 1, 2026. The benchmark index closed at a record high of 8,788.38, up 312.23 points, or 3.68%, from the previous session. (Photo by Chris Jung/NurPhoto via Getty Images)
Nurphoto Nurphoto Getty Images
About 18 months ago, the value of India’s equity market stood at 3.5 times that of South Korea and twice that of Taiwan, according to Bernstein analysts in a paper published on Monday.
For nearly ten years to 2024, India has been one of the best performing markets, according to Nitin Jain, CEO and managing director of Kotak Mahindra Asset Management Singapore. In less than two years, the story has changed from India to “the best story that nobody wants to think about,” he told CNBC.
AI versus India’s use case
AI is “a very strong theme,” and if companies in the field continue to experience earnings growth, investors won’t jump to other markets, Jain said.
Year to date, Korea’s Kospi 200 has gained more than 130% while Taiwan’s FTSE TWSE 50 is up more than 60%, outperforming all Asian peers. India’s benchmark indices, in stark contrast, were the only ones in the red, down more than 10%, data from LSEG shows.
India has missed the boat on AI, according to Venugopal Garre, managing director and head of India research at Bernstein, speaking to CNBC’s Inside India on Tuesday.
India does not have a semiconductor manufacturing ecosystem and on the services side, IT companies are focusing on services and staffing conflicts in new areas that can be risky and cost-intensive, Garre said.
But despite this, experts say the lack of AI play is not the main reason why global investors are leaving India.
A weak lead cycle
“Brazil has no AI to play with, yet its markets are doing well,” said Sridhar Sivaram, director of investments at Mumbai-based Enam Securities. He said prices in India are high, and income growth last year was “very moderate.”
According to data from research firm Alpine Macro, Indian stocks currently trade at 21 times forward earnings, the same as Taiwan, while South Korean stocks trade at nine times forward earnings.
Meanwhile, global brokerage Nomura cut its consensus earnings estimates for India’s top 256 companies it tracks by 4% for the fiscal year ending March 2027, largely due to the impact of Middle East conflicts.
The decline in the popularity of Indian currencies is reflected in the MSCI index, where the country’s weight has fallen to around 11% from its peak of around 20% in 2024.
While some of these headwinds may subside once the Middle East conflict comes to an end, other long-term concerns are dampening investor confidence in India’s spending.
Advances in automation and robotics are “reducing the importance of India’s low-skilled labor as a competitive advantage,” while the rapid adoption of AI “raises questions about the long-term vision” of parts of India’s IT industry, according to Yan Wang, chief emerging markets and China strategist at Alpine Macro.
“Combined with still-rich equity valuations, these factors may continue to limit the enthusiasm of foreign investors even if political tensions ease,” Wang told CNBC.
You need to know
Like Indonesia, India’s central bank may raise rates to protect its currency
India’s central bank may defy expectations to leave its benchmark interest rate unchanged during its monetary policy meeting on Friday as the economy faces the twin dangers of a weak currency and high inflation.
Coca-Cola is considering listing its bottling unit in India by 2027
The US-based multinational company on Monday said preparations are underway to list the Indian bottler, Hindustan Coca-Cola Holdings, on the Bombay Stock Exchange and the National Stock Exchange of India, in 2027.
It’s coming
June 5: Monetary policy decision of Reserve Bank of India.
June 5: India’s GDP data for January-March.
