The emergence of AI has not only changed global technology leadership but also started to affect capital flows, market valuations, and sectoral preferences worldwide, with foreign investors withdrawing more than Rs 2.2 trillion from Indian equities in 2026 and directing capital towards AI-driven markets.
Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, talks about whether India is on the wrong side of the AI trade, how domestic sectors can take part in the global AI buildout, and why she thinks a completely different group of companies may lead the next bull market in an exclusive interview with BW Businessworld.
She also discusses the prospects for data infrastructure and defense, the future of Indian IT, and the main concerns that investors might be underestimating in light of rising crude prices and a declining currency.
As foreign capital chases Taiwan, South Korea, and US AI beneficiaries, FIIs have withdrawn more than Rs 2.2 trillion this year.
Is India just out of step with this decade’s most significant investment theme? When it comes to where the money is going, India is playing a different game in the AI economy. The markets in South Korea and Taiwan have increased by 78% and 42%, respectively, while our Nifty has dropped by more than 9%.
The explanation is rather simple: those markets are benefiting from the surge in semiconductor and chip manufacturing, which is currently not India’s strongest suit. Rather, we excel in GCC services, enterprise AI deployment, and data infrastructure development.
With approximately 2,000 centers and roughly 2 million employees working on high-value software and analytics for multinational corporations, India is home to more than half of the world’s GCCs. The real value will go to the services and applications sector, where India is already a leader, once the present hardware investment cycle cools off and the excitement surrounding a few large names subsides.
Is the IT industry in India experiencing a “Kodak moment,” where AI has the potential to disrupt traditional outsourcing more quickly than businesses can adjust?
Large IT companies in India are already altering their operations to incorporate AI into their delivery models rather than waiting for problems to arise. Thanks to its drive into corporate AI with Infosys Topaz, Infosys recorded USD 4.8 billion in significant agreements in Q3 FY26, with over half of that coming from new clients.
The actual problem currently is that as AI tools advance, they can perform more tasks that formerly required large teams, which puts pressure on profit margins and revenue per employee.
Businesses that successfully integrate AI into their core operations and secure new, larger contracts will emerge from this shift with stronger profits and more loyal customers. However, those that merely incorporate AI into their current methods of operation may encounter serious financial difficulties.
Choosing the appropriate stocks is more important than simply betting on the entire industry because you can already notice the difference in the quality of agreements and new business flowing in.
Given that AI-led markets are providing both better earnings growth and currency stability, why would a foreign investor purchase Indian stocks today?
If you’re wondering why anyone should look into Indian stocks at this time, there are three main reasons: the country’s domestic demand narrative is still enormous, earnings are expected to rise from a low base, and values are more reasonable. In FY25 and the first half of FY26, Nifty 50 earnings growth fell to roughly 5%; however, a recovery of 11–15% is anticipated for FY27.
Although Indian stocks still trade at a little higher price than those in other emerging markets, this is typically supported by stronger long-term growth and less geopolitical instability than you find in North Asia or China. Prices have decreased from their highs.
Taiwan and South Korea are benefiting from the AI and semiconductor boom, but both markets could suffer greatly if the cycle reverses. India offers a sizable domestic market, government infrastructure expenditure, an RBI that is lowering interest rates, and banks that are just beginning a fresh profit cycle for those with a three to five-year outlook. In terms of dollars, Indian stocks have more than compensated for the rupee’s drawback over time.
Has the lack of a viable AI prospect in India caused defense and infrastructure to become saturated markets?
Infrastructure and defense stocks are currently in high demand, and for good reason. They are exhibiting significant government support, larger order books, and actual earnings growth. For FY27, the Union Budget’s total capital expenditures increased by 11.5%, with an 18% increase in defense spending.
In addition to a 20-year tax amnesty for international cloud corporations operating data centers out of India, capital expenditures as a percentage of GDP remain stable at 3.1%. That is a clear call to action for AI infrastructure. The data center buildout is arguably the simplest choice in the listed market if you’re looking for a strategy to play the AI theme in India, and it fits in with all the current power and construction investment.
AI infrastructure, defense, and the energy transition are driving a fresh wave of investment, according to Morgan Stanley and others. In 2026 alone, CBRE anticipates 500 MW of new data center supply. You will miss the greater picture if you limit your attention to semiconductors. The order books of capital goods, electricity, and infrastructure companies already show that India is developing the foundation for AI on a national level.
Could a whole new group of businesses, other than the banks, IT firms, and consumer brands that dominated the previous 20 years, lead India’s next bull market?
The upcoming Indian bull run will be substantially different from the previous one. Due to fast urbanization and the growth of the middle class, banks, large IT corporations, and consumer companies have been at the forefront over the past 20 years.
However, the growth story is now changing because those drivers have grown up. Energy transition, renewable energy, defense, aerospace, data centers, digital infrastructure, capital goods, precision manufacturing, and wealth management are poised to produce the new leaders.
Data centers are increasingly considered essential infrastructure, and India is rapidly rising to the top of the global GCC destination list. Expect a significant increase in the Nifty’s weight in energy, industrials, and ICT infrastructure by 2035. You risk missing out on the next wave of significant compounders if you continue to focus on yesterday’s winners.
What is the largest risk that investors are currently underestimating, given that rising crude prices and a declining rupee are likely to put pressure on Q1 earnings?
The risk that most people are now ignoring is how the earnings rebound that everyone seems to be banking on could be impacted by rising crude prices and a declining currency. Nifty 50 earnings growth projections for FY27 have already been lowered from 15 to 16% to 8 to 13%, primarily as a result of the sharp increase in India’s crude basket brought on by international tensions.
This might result in increased inflation, a larger current account deficit, and reduced profit margins for oil-dependent businesses.
The market is aiming for the ideal situation in which oil prices drop, the rupee stabilizes, and earnings significantly increase. However, there is a genuine chance of disappointment if even one of those things goes wrong. High energy costs, a weak currency, and the possibility of a bad monsoon harming growth and inflation in FY27 have all already been cautioned about by the Finance Ministry.
Which three industries would receive the largest allocation if you were to construct a portfolio for the next three years now, and why?
Today, if I had to choose three industries for a three-year portfolio, I would choose domestic capital goods with an emphasis on defense, electricity and data infrastructure, and finance and wealth management. Brokers predict that in FY27–28, BFSI earnings would expand by 16–17%, with private banks potentially reaching 20%.
NBFCs with clean books that can take advantage of reduced rates and AMCs riding the SIP trend. The demand from AI, industrial capital expenditures, and grid improvements for power and data infrastructure is a long-term narrative with robust legislative backing.
Lastly, indigenization targets, an 18% increase in defense capital expenditures for FY27, and PLI incentives for electronics make domestic capital goods and defense appear strong. This market is less vulnerable to shocks from around the world and has superior profit visibility. The global AI buildout and India’s growth story are centered around these three industries.
