Hello, this is Priyanka Salve, writing to you from Singapore.
Welcome to the latest edition of “Inside India“ — your one-stop destination for stories and developments from the world’s fastest-growing large economy.
AI-driven gains in TSMC, Samsung and SK Hynix, plus a weaker rupee and headwinds from the Middle East conflict are reshaping Asia’s market rankings. This week, I explore how the AI theme is outshining India’s consumption story.
Read on!
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The big story
In 2026, animal spirits are driving investments in artificial intelligence firms, valuing stocks such as TSMC, Samsung and SK Hynix at over a trillion dollars.
For the world’s fastest-growing major economy, India — which has no large-scale AI play — this is bad news, especially at a time when its highly sought-after domestic consumption story is cracking, according to experts CNBC spoke to. Households are facing higher inflation, weaker currency, and a slowdown in quality job creation.
This decline in consumer spending and an increase in input costs due to the conflict in the Middle East is also expected to slow down corporate earnings in the financial year ending March 2027, the experts said, adding that it is making foreign investors even more eager to exit.
Foreign investors have sold Indian equities worth $27.6 billion since January, compared with a total of $18.9 billion in 2025, per data from the Indian depository NSDL.
Meanwhile, the market capitalization of India’s peers is soaring. Taiwan’s market cap touched nearly $5 trillion as it surpassed India to become the world’s fifth-largest equity market on May 26. Within a week, South Korea too pushed ahead of India, overthrowing it from sixth place, based on data compiled from the three exchanges.
It seems tables have turned against India, sharply.
An electronic display shows the closing KOSPI index inside the lobby of the Korea Exchange in Seoul, South Korea, on June 1, 2026. The benchmark index closes 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
Roughly 18 months ago, India’s equity market cap stood at 3.5 times that of South Korea and more than twice that of Taiwan, according to Bernstein analysts in a note published Monday.
For nearly a decade until 2024, India was one of the best-performing markets, according to Nitin Jain, chief executive and director of Kotak Mahindra Asset Management Singapore. In less than two years, the narrative has shifted from India “being the best story to a story which nobody wants to even think about,” he told CNBC.
AI vs India’s consumption story
AI is a “very powerful theme,” and if companies in the sector continue to get an earnings upgrade, investors are not going to jump ship to other markets, Jain said.
On a year-to-date basis, Korea’s Kospi 200 has gained over 130% while Taiwan’s FTSE TWSE 50 is up over 60%, outperforming all Asian peers. Indian benchmark indices, in sharp contrast, are the only ones in the red, falling over 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 an ecosystem for semiconductor manufacturing and on the services side, IT companies are focused on services and labor arbitrage over newer areas that would be risky and consume a lot of capital, Garre said.
But despite this, experts say the lack of AI play is not the main reason why global investors are exiting India.
Weak earnings cycle
“Brazil has no AI play, yet its markets are doing well,” said Sridhar Sivaram, investment director at Mumbai-based Enam Securities. He said India’s valuations are high, while earnings growth last year was “very moderate.”
According to data from research firm Alpine Macro, Indian stocks are currently trading at 21 times forward earnings, similar to Taiwan, while South Korean equities are trading at nine times forward earnings.
Meanwhile, global brokerage Nomura has lowered its consensus earnings estimates for the 256 top Indian companies it tracks by 4% in the financial year ending March 2027, largely due to the impact of the Middle East conflict.
The declining popularity of Indian equities is reflected in the MSCI index, where the country’s weightage has shrunk to around 11% from its peak of nearly 20% in 2024.
While some of these headwinds are likely to ease if the conflict in the Middle East comes to an end, some long-term concerns are also denting investor confidence in India’s consumption story.
Advances in automation and robotics are “reducing the importance of India’s low-cost labor as a competitive advantage,” while the rapid adoption of AI is “raising questions about the long-term outlook” for 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 foreign investor enthusiasm even if geopolitical tensions ease,” Wang told CNBC.
Need to know
Like Indonesia, India’s central bank may hike rates to defend its currency
India’s central bank may defy expectations that it will leave its benchmark interest rate unchanged during its monetary policy decision meeting on Friday as the economy faces dual risk of a weak currency and higher inflation.
Coca-Cola explores listing of its India bottling unit in 2027
The U.S.-based multinational on Monday said that preparations are underway to list its Indian bottling unit, Hindustan Coca-Cola Holdings, on the Bombay Stock Exchange and National Stock Exchange of India, in 2027.
Coming up
June 5: Reserve Bank of India monetary policy decision.
June 5: India GDP data for January-March.
