India Now an 'Anti-AI Trade' Poised to Mean-Revert: DSP
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- India has underperformed emerging markets by ~40% over the past year and cumulatively ~70% over two years — levels DSP says it has never seen before, framing the market as an 'anti-AI trade' that could mean-revert.
- DSP Asset Managers notes tech's share of emerging markets' market cap has jumped from 20% to 46%, and on the All Country World Index from 20% to 30%, with two-thirds of EM's 25% returns coming from just three stocks.
- India lacks hardware and semiconductors — segments that drove 50% of growth in EM and world markets — leaving it structurally absent from the AI rally that lifted peers.
- Indian equities at the start of 2025 were hit by US tariffs, earnings growth weakness, currency depreciation, and FPI selling, but Kothari says the latest quarter's earnings growth hit a 10-quarter high and retail flows remain intact.
- Indian large caps have lagged mid- and small-caps by ~20% over the past year, with Kothari saying banks now look strongest as credit growth returns, delinquencies stay low, and credit costs decline.
- FPIs are selling in India's secondary market to buy into a wave of upcoming IPOs, prompting Kothari to warn retail investors not to chase momentum-driven listings without underlying fundamentals.
Why it matters: India's two-year 70% cumulative underperformance against emerging markets has reversed the historical script — pre-AI, India grew at 20% CAGR while Korea and Taiwan posted 5–6% — and Kothari argues that with costlier AI valuations and earnings growth hitting a 10-quarter high domestically, investors who stayed patient now own a portfolio positioned to outperform when the AI trade mean-reverts.
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