A country’s stock market serves as a useful barometer of its attractiveness as an investment destination. Investors, both domestic and foreign, are, after all, driven by the ruthless logic of risks and returns, and not by political rhetoric. Flows of capital are thus a good reflection of what investors believe are a country’s growth prospects. And if the recent past is any guide, India has fallen well off the radar of foreign investors. But, it’s not just the war in West Asia that has made investors skittish. The uneasiness about India’s growth story predates that.
One could well argue that in this Trumpian era of uncertainty, global capital has become risk-averse. And that emerging markets are disproportionately impacted by the flight to safety. But stock markets tell a different story. Investors are exuberant about the prospects of both emerging and developed markets, countries that were hit by high US tariffs, those without an AI play and even those that are dependent on energy imports from West Asia.
Take a look at the US. Largely insulated from the dislocations in the energy markets, it is at the heart of the AI ecosystem. Its top 5 companies — NVIDIA, Alphabet (Google), Apple, Microsoft and Amazon — have a combined market capitalisation of around $20 trillion. The AI capex cycle is benefiting a host of companies across the spectrum. And the boom has spread to all corners of the world, to the oddest of all places.
In Japan, for instance, Toto, a toilet maker, has seen its shares surge. According to various reports, the firm is a major producer of electrostatic chuck used in the production of NAND memory chips. Such oddities aside, countries like South Korea and Taiwan, which are part of the global AI ecosystem through Samsung, SK Hynix and TSMC, have seen their stock markets soar.
But, it must be pointed out that both these countries are more dependent on energy imports than India. South Korea imports around 97 per cent of its fossil fuel needs, with 61 per cent of its crude oil imports flowing through the Strait of Hormuz. Similarly, Taiwan imports over 94 per cent of its energy demand. This only suggests that, if there is a compelling story, an investable opportunity, investors are willing to overlook even major concerns such as disruptions in energy supplies.
However, it’s not just the AI boom. Investors are exuberant about the prospects of other markets as well, even those without any significant AI play. As others have also pointed out, take the case of Brazil. So far this year, the Bovespa is up almost 11 per cent, while the Brazilian Real is up around 8 per cent. What has worked in its favour, in part, is that it is one of the largest exporters of crude oil. But look at the year before. In 2025, when Trump had imposed a 50 per cent tariff on the country, the Bovespa was up 34 per cent. And this is before you factor in a currency appreciation of roughly 13 per cent against the dollar. Investors clearly looked beyond the tariff dilemma.
Yes, narratives do change. The AI boom may well fade away. The cycle will turn as it has done repeatedly in the past. Investors will then scour the world for investable opportunities. The question then will be: What is the India story? What does the country offer? Over which chokepoint in which industry does it have a stranglehold? Where does its competitive advantage lie?
The India growth story cannot be one that is propped up by government spending alone. Private investment hasn’t soared despite the use of fiscal and monetary levers. Animal spirits remain caged in spite of repeated exhortations by the government. Domestic consumption isn’t growing fast enough simply because jobs and income growth has been muted. Valuations matter, so do earnings growth prospects and taxes. Several FTAs have been signed, but movement on the reforms needed to take advantage of these deals has been slow at best. That’s the macro reality. Yes, political stability also matters. But where has the enormous political capital been marshalled to push through contentious, far reaching reforms? Some may feel that the tide will eventually turn. Maybecol. But hope should not be a strategy.
Till next time,
Ishan
Recommended readings
Sachchidanand Shukla, “India needs to win back foreign investors. Three things to do”, May 15
Pratap Bhanu Metha, “In age of uncertainty, patriotism is a poor substitute for statecraft”, May 14
C Raja Mohan, “In a shifting world order, five principles should guide India’s diplomacy” May 13
Nilesh Shah, “PM’s appeal for gold restrain could mark a power inflection point”, May 13
B Ashok, “Government, oil companies can’t absorb energy shock indefinitely”, May 12, 2026
