Although the Diwali mood for global markets was ‘lights out’, it unexpectedly lit up Dalal Street. The $2.5-trillion global market dive exposed the Achilles’ heel of the AI boom. Ironically, India profited. When Asian markets tumbled, the Sensex and Nifty advanced more than 2 percent each on Friday, as foreign investors were back into Indian equities with bang for the buck. The Sensex rallying past the 81,000 mark, the Nifty 25,000, and the indices surpassed the previous best seven-day pre-Diwali performance last seen 35 years ago.
Until barely a week ago, India faced persistent foreign capital outflows, forcing course correction in both indices, leading to their worst annual performances in at least a decade. Then the easing of the West Asian crisis, one of the biggest drags on the markets in recent months, gave it buoyancy. Now, the crash impact could also realign global capital, reducing enthusiasm for technology investment. As the US midterm verdict routed the Republicans, rising concerns of tougher laws on data centres and doubts on poor returns on AI directed capital towards Indian shores. This may have something to do with the possible reduction or abolition of long-term capital gains tax as a gift waiting to be unwrapped early next year. So, after the net exit of more than $3 billion through October, more than $4 billion has come in during November till date. So Thursday’s $1.6-billion buy was the biggest single-day inflow in almost six years.
But a word of caution. A capital flight from an overheated American technology market will not automatically encourage a long-term endorsement of India’s economic prospects. The same dollars that came can leave just as quickly if valuations and earnings become disappointing, or policy uncertainty shows its head. The opportunity has arrived for India to position itself as a credible and competitive investment market when global capital is reassessing its exposure to technology stocks. Upbeat policy statements or tax concession promises aren’t enough. Predictable taxation, regulatory consistency, deeper capital markets, stronger corporate governance and long-term rewards make up the sweet spot. Capital has no permanent loyalties, since it goes where the returns justify the risks. When the world’s money is looking for a new parking space, India must be seen as the right choice.