The Nifty IT index has outperformed the index of U.S. chipmakers by the widest margin for any month since 1999, according to a Goldman Sachs note dated July 29. Broader Indian markets also outperformed peers in July, with the benchmark Nifty 50 rising 2% compared to a 24% drop in South Korea’s technology-heavy index and a 7% drop in Taiwan’s equity benchmark.
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Beaten-down stocks, led by software exporters, have rallied as global investors exit crowded AI-linked positions and target markets with limited exposure to the sector. Indian equities lagged Asian and emerging-market peers last year and throughout the first half of 2026, weighed down partly by the absence of AI-related heavyweights in benchmark indexes.But that weakness is now proving a strength, as a pullback in AI-related shares rattles markets including South Korea and Taiwan and prompts investors to seek alternatives. Todd McClone, a portfolio manager at William Blair Investment Management, which oversees about $65 billion, says there has been a major sector rotation over the past couple of weeks. India has emerged as the “obvious destination” for investors trimming their exposure to North Asian and U.S. technology stocks, said McClone, whose fund started turning positive on India in April and added to positions in June after the central bank took steps to support the rupee.Indian IT shares have been the biggest beneficiaries of the reallocation, with the Nifty IT index surging 16.7% in July as the Philadelphia Semiconductor Index slumped 21%. The Nifty IT index has outperformed the index of U.S. chipmakers by the widest margin for any month since 1999, according to a Goldman Sachs note dated July 29. Broader Indian markets also outperformed peers in July, with the benchmark Nifty 50 rising 2% compared to a 24% drop in South Korea’s technology-heavy index and a 7% drop in Taiwan’s equity benchmark. Over the past month, HSBC upgraded India to “neutral” from “underweight,” while UBS lifted its rating to “attractive” from “neutral.” Goldman Sachs and Bernstein have flagged the prospect of a second-half rebound for the Nifty 50. Alongside the reversal of the global AI trade, improving earnings and the RBI’s currency support measures have bolstered sentiment towards India.Ji Young Park, senior Asia ex-Japan equity portfolio manager at Amundi, which manages $2.8 trillion in assets, said the firm was “constructive” on India as concerns over high oil prices were largely reflected in valuations.Park expects AI-driven rotation into India to persist as valuations in sectors such as financials, healthcare and industrials have become attractive. However, the IT rally could be tested by an uncertain earnings outlook amid AI-led disruption, Park said.FLOWS MAKE A CAUTIOUS RETURNThe rotation away from AI-related trades is showing up in flows, with foreign investors buying more than $1.6 billion worth of Indian equities in July.While modest in absolute terms, the inflows mark a notable turnaround after foreign investors sold about $29 billion of Indian equities in the first six months of the year. Whether that proves durable will depend on two key factors, analysts said: a recovery in earnings after several lacklustre quarters and a de-escalation of tensions in the Middle East.“India could emerge as one of the few markets where growth remains sustainable compared with the rest of the world,” said Mayuresh Joshi, head of equity research, India, at William O’Neil & Company. McClone of William Blair said Indian corporate earnings were now moving “onto an upward trajectory” after slowing in 2024 and 2025.“India is set up for a strong second half of the year,” he said. Published on July 31, 2026
