Manish Bhandari, CEO and Portfolio Manager at Vallum Capital, argues that global investors now see India as a comparatively safe destination. He believes the country’s case is even stronger because it largely missed the AI‑driven market rally.
In the current AI trade, Taiwan trades at an 85 % premium and South Korea at 71 % above their 10‑year averages, while India is trading at a 2.39 % discount to its own historical average. Bhandari says that when the AI trade mean‑reverts, India will be the last market standing, thanks to earnings momentum, strong domestic demand, and institutional underweight.
He also highlights AI infrastructure capital expenditure as a compelling theme. The spending on AI hardware creates a cascading demand chain in power electronics, cooling, specialty chemicals, and precision components—areas where Indian manufacturers are quietly building capabilities.
Foreign investors pulled $29 billion from Indian equities in the first half of 2026, but turned net buyers in July. The valuation reset that followed is now working in India’s favour. The RBI’s sustainability report for June 2026 shows India’s 12‑month forward P/E premium over MSCI EM at 67 %, above the 15‑year average of 54 %.
Corporate earnings are expected to grow at a 15 % CAGR through FY26‑28. The Nifty 50 earnings growth has been revised down from 5.1 % to 2.6 %, while the Midcap 100 and SmallCap 100 remain at 21 % and 32.6 % respectively. Large‑cap indices are weighed down by sectors with structural headwinds, but the real earnings momentum lives in the middle and smaller end of the market.
RBI policy remains neutral. Core inflation sits at 2.3‑2.5 %, far below the 4.5 % threshold that would trigger a hike. The 10‑year government bond is trading in the 6.65‑6.85 % band, a full rally from earlier levels. A rate hike would be self‑defeating in the current environment.
The sectors that will drive earnings growth are those with quality growth, real asset backing, and pricing power. Indian manufacturers that own physical productive assets—such as those in AI infrastructure, pharma CDMO, textiles, defence ancillaries, and electronics—are positioned to benefit from structural demand.
AI infrastructure capex fuels a cascading demand chain that extends beyond hardware. Pharma companies that can manufacture complex molecules for global innovators are gaining multi‑year order visibility. Textiles benefit from new trade agreements with the UK and EU, giving export‑oriented manufacturers a tariff advantage. Defence ancillaries are part of a decade‑long capital allocation shift, with Indian component makers entering global supply chains.
In short, while the index may not rally as it did in 2022‑23, the next leg of the market will be driven by a handful of micro‑themes. Investors who focus on fundamentals, pricing power, and domestic demand are likely to find attractive opportunities in India’s next rebound.