Summary
As global capital increasingly shifts toward artificial intelligence-led growth, India risks being sidelined. While companies in the country are adopting AI, most are using it to improve efficiency rather than to build new products or scalable revenue streams — a factor that is influencing investor sentiment and capital flows.
The Global AI Race Is Now a Capital Race
The global competition in artificial intelligence is no longer just about technological capability. It is increasingly about where capital is being deployed.
At present, the United States is leading this shift decisively. Companies there are investing aggressively in:
- Advanced AI models
- Large-scale data centres
- AI-native products and platforms
According to a report by Stanford University, private AI investment in the US reached $285.9 billion in 2025, dwarfing China’s $12.4 billion. Despite concerns about a potential AI bubble, investor enthusiasm remains strong.
The message is clear: capital is chasing long-term AI-driven value creation, not just incremental innovation.
India’s Position: Present, But Not Leading
India is not absent from the AI story — but it is not at the forefront either.
A growing concern is the shift of foreign capital away from Indian markets. Investors are increasingly reallocating funds to economies and companies that offer stronger exposure to AI-led growth.
This is not because Indian companies lack AI adoption. In fact, many firms are actively integrating AI into their operations. However, the intent behind adoption differs significantly.
In India, AI is largely being used to:
- Improve operational efficiency
- Reduce costs
- Protect profit margins
What is missing is large-scale evidence of AI being used to:
- Build new products
- Create platform businesses
- Unlock new revenue streams
And in today’s market, that distinction matters.
Capital Is Moving — And the Numbers Reflect It
Recent data highlights a clear shift in global investment patterns.
- In March 2026 alone, foreign portfolio investors (FPIs) sold $12.58 billion worth of Indian equities — the highest monthly outflow on record.
- FPI assets under custody dropped from nearly $930 billion in September 2024 to around $660 billion by March 2026, marking a significant decline.
While macroeconomic factors like inflation, geopolitical tensions, and currency pressures play a role, they are only part of the story.
At the same time:
- The US ETF market recorded $112.9 billion in inflows in March 2026
- Equity ETFs alone attracted $56.7 billion
More importantly, AI continues to dominate global capital allocation. Estimates suggest that US-based companies captured nearly 79% of global AI funding in 2025.
Why Investors Are Looking Elsewhere
From an investor’s perspective, this shift is not surprising.
Markets such as Taiwan, South Korea, and China are increasingly seen as attractive alternatives. They offer:
- Lower valuations
- Stronger alignment with AI-driven growth
- Greater exposure to hardware and infrastructure ecosystems
In comparison, Indian companies are often viewed as relatively expensive without offering comparable AI-led growth narratives.
The Core Issue: Efficiency vs Innovation
At the heart of the issue lies a fundamental difference in how AI is being utilised.
In India:
AI is primarily a tool for efficiency
- Automation of processes
- Cost reduction
- Margin protection
In the US:
AI is a driver of innovation and expansion
- New product categories
- Platform-based ecosystems
- AI-native revenue models
This divergence has significant implications.
Investors today are not asking whether companies are using AI.
They are asking: Is AI creating new value?
Without clear signals of:
- AI-driven revenue growth
- Proprietary technology or intellectual property
- Scalable AI-first offerings
Indian firms risk being seen as efficiency stories rather than growth stories.
Structural Challenges in the Indian IT Sector
The gap is not just strategic — it is structural.
India’s IT industry has historically been:
- Service-led
- Client-dependent
- Focused on execution rather than product innovation
This model, while successful in the past, may limit participation in the current AI-led value cycle.
- AI infrastructure
- Semiconductor ecosystems
- Data centre supply chains
Meanwhile, many Indian IT firms have taken a cautious approach:
- Making incremental capability acquisitions
- Prioritising share buybacks
- Avoiding aggressive AI investments
This signals a wait-and-watch strategy, which may carry long-term risks.
The Risk of Falling Behind
The biggest concern is timing.
In fast-evolving sectors like AI, early movers often capture a disproportionate share of value. If companies delay meaningful investments, the most lucrative opportunities may already be taken.
Global investors are aware of this dynamic. As a result, many are:
- > Reassessing their exposure to Indian IT stocks
- > Comparing opportunities across global markets
- > Waiting for clearer signs of AI-led growth before committing capital
This is not a complete exit — but it is a pause.
And in capital markets, pauses can be just as significant.
What We Believe
India stands at a critical juncture in the global AI landscape.
The country has:
- Strong technical talent
- A large digital economy
- Growing AI adoption
But to remain competitive, it must move beyond using AI for efficiency alone.
The next phase of growth will belong to companies that:
- > Build AI-driven products
- > Create scalable platforms
- > Generate new value pools
Until then, global capital is likely to continue flowing toward markets that are not just adopting AI — but building the future around it.
