A report by Bay Capital suggests that a shift in the artificial intelligence (AI) hype could refocus large global investors on India. The report highlights that much of the global AI infrastructure development is debt-funded, raising concerns similar to past telecom-fibre booms. Despite significant enterprise investments in generative AI, a finding shows that 95% of organizations are not seeing any returns.
India’s market composition, often viewed as a drawback in the AI-focused investment scenario, might actually become advantageous once the AI hype subsides. The report emphasizes that India’s limited direct exposure to AI infrastructure like semiconductor manufacturing positions it as an emerging AI application economy. This trend is seen as a potent efficiency enhancer across India’s extensive domestic market.
The AI trade has significantly influenced capital flows, investor sentiments, and global asset allocation, with hyperscalers driving capital expenditure and semiconductor-related equity valuations soaring. India’s perceived lack of involvement in the global AI surge has led to a substantial outflow of foreign capital. In 2024, foreign portfolio investor outflows from India reached approximately $23 billion, with $13 billion recorded year-to-date in 2025, as per the report.
Despite foreign portfolio investors pulling out of India, the country’s macroeconomic fundamentals remain robust, ranking among the strongest globally. India contributes 9% to global GDP growth (around 18% based on purchasing power parity) and is projected to grow at over 6.7% from FY25 to FY28, outpacing other G20 nations in economic expansion.
