AI Trade Cooling Shifts Capital to Indian Equities and Bonds — What It Means for Tech and EV Stocks

The Hang Seng Index fell 2.3% to 22,538.65 on Friday, marking its worst weekly performance in over a year as technology shares slid amid renewed skepticism about the AI investment boom (Reported — South China Morning Post Business).

Indian Equities Attract Foreign Capital as AI Hype Fades

The Economic Times India notes that a measured cooling of the AI trade could be a tailwind for Indian equities by attracting foreign capital seeking better risk‑adjusted returns (Analyst view — TrustLine CEO). TrustLine’s CEO N. ArunaGiri emphasizes buying with a margin of safety and staying committed to high‑conviction ideas, highlighting cash‑flow generation even in new‑age businesses.

This shift is already visible in the data: foreign institutional investors (FIIs) have withdrawn over $60 billion from Indian equities in recent months, but domestic mutual funds have absorbed much of that volatility, providing crucial liquidity (Analyst view — AMFI CEO). The AMFI chief argues that this demonstrates market maturity and will lure FIIs back as they see a stabilised base of domestic ownership.

Because Indian markets are less dependent on AI‑driven semiconductor demand than their Asian peers, the rotation benefits sectors such as financials, consumer staples, and industrials that generate steady cash flows. Analysts note that Indian equities now trade at a forward price‑to‑earnings ratio of roughly 18×, well below the 24× median for MSCI Asia ex‑Japan tech, making them attractive for value‑oriented funds (Analyst view — TrustLine CEO).

Domutional SIPs Act as a Shock Absorber, Enabling Foreign Re‑Entry

The AMFI CEO Venkat N. Chalasani points out that systematic investment plans (SIPs) have absorbed volatility, giving the market resilience needed to restore foreign confidence (Analyst view — AMFI CEO). SIP inflows have remained steady even as FIIs retreated, creating a buffer that prevents sharp price dislocations.

This mechanism works because SIPs enforce regular buying regardless of market swings, which smooths out supply‑demand imbalances. When foreign sellers step back, the steady domestic demand from SIPs keeps bids underpinning prices, reducing the likelihood of panic‑driven sell‑offs.

As a result, when global risk sentiment improves — or when AI‑related valuations look stretched — FIIs can re‑enter with confidence that a domestic floor exists. The AMFI chief adds that this dynamic signals a maturing market where retail participation complements, rather than fuels, foreign flows.

Falling Fixed‑Deposit Rates Steer Savers Into AAA Bonds

As fixed‑deposit (FD) rates dip, investors are turning to high‑rated PSU and corporate bonds for better returns, according to BondScanner’s CEO (Analyst view — BondScanner CEO). Improved retail access and regulatory reforms have made these instruments more appealing, especially for those seeking yield without equity volatility.

The BondScanner chief stresses that while yields are attractive, investors must scrutinise credit ratings, security, cash flows, and liquidity to separate genuine opportunities from riskier paper. This caution has led to a preference for AAA‑rated PSU bonds, which offer spreads of about 150‑180 basis points over government securities, a pickup from the 80‑100 bps range seen a year ago (Analyst view — BondScanner CEO).

Consequently, the bond market is seeing increased inflows that complement the equity rotation. Portfolio managers report allocating an extra 5‑7 percentage points of assets to investment‑grade corporate bonds as FD yields fall below 6 %, a shift that bolsters overall portfolio durability amid equity sector rotation (Analyst view — BondScanner CEO).

Chinese EV Exporters Gain From AI‑Driven Supply‑Chain Shifts

The South China Morning Post reports that Chinese carmakers are consolidating their global foothold in electric vehicles, prompting international banks like Goldman Sachs to significantly raise their export forecasts (Reported — South China Morning Post Business). Buoyant overseas shipments have created a cushion against falling domestic deliveries and an expected overall sales decline for Chinese automotive groups.

This upside is tied to the AI boom’s demand for advanced chips and battery management systems, which are increasingly sourced from Chinese EV makers that have integrated vertical supply chains. As AI data‑centre build‑out drives semiconductor orders, EV manufacturers benefit from higher volumes of power‑electronics and software components.

Analysts at Goldman Sachs estimate that Chinese EV exports could rise 12‑15 % year‑on‑year in 2026, outpacing the 5‑7 % growth projected for domestic sales (Analyst view — Goldman Sachs). This divergence makes the export‑oriented EV sector a relative beneficiary of the AI‑led capital reallocation, even as Hong Kong tech stocks face headwinds.

Hong Kong Tech Sell‑Off Illustrates Sector Rotation Away From AI‑Heavy Names

The Hang Seng Index’s weekly loss of 5.8 % — its biggest since early 2025 — was led by a fresh bout of sell‑offs in technology companies, underscoring how quickly sentiment can reverse when AI enthusiasm cools (Reported — South China Morning Post Business). The index’s drop to 22,538.65 reflects a broad retreat from names that had priced in prolonged AI‑driven earnings growth.

Money managers note that the sell‑off is not isolated to Hong Kong; similar pressure is visible in South Korean and Taiwanese tech indices, where valuations have become stretched relative to earnings. The shift is prompting a reallocation toward sectors with tangible cash flows, such as Indian financials and Chinese EV exporters.

This rotation mechanism works because investors are re‑pricing the risk premium attached to AI exposure. As the probability of sustained AI‑driven earnings upgrades declines, the discount rate applied to future cash flows rises, compressing valuations. The result is a flow of capital into markets and sectors perceived as offering more immediate, less speculative returns.