Uday Kotak, founder of Kotak Mahindra Bank, believes a cooling in global AI investment could redirect foreign capital to Indian equities. With Nifty 50 valuations moderating from 21x to 17.5x earnings, India's resilience offers a potential defensive hedge. However, he warns that risks like volatile crude oil prices and further RBI interest rate hikes remain key monitorables.
Uday Kotak, the founder of Kotak Mahindra Bank, has noted that a potential correction in the global artificial intelligence (AI) investment bubble could serve as a catalyst for renewed foreign capital inflows into Indian equities. As global corporations face increased scrutiny over the high leverage and aggressive borrowing used to fund AI initiatives, Kotak suggests that international investors may rotate capital toward markets with more stable and grounded growth trajectories.
The investment environment for Indian stocks has undergone a notable shift in 2026. Earlier this year, the Nifty 50 index traded at a forward price-to-earnings (P/E) multiple of 21 times, which deterred many global participants. This valuation has since moderated to approximately 17.5 times estimated 12-month forward earnings, improving the relative appeal of Indian assets. This adjustment follows a period of significant selling pressure, where foreign portfolio investors withdrew roughly $29 billion from the Indian market throughout the year.
Despite this record outflow, the domestic market has demonstrated resilience. The equity indices have staged a recovery of approximately 10% from their lows recorded in early October 2026. This recovery has been largely supported by consistent domestic institutional interest, which has acted as a counterbalance to the selling by global funds.
Monitoring Risks to Growth
While the prospect of capital rotation is a positive for local equities, Kotak highlights that the outlook is not devoid of risks. A primary concern is the movement of crude oil prices. As a significant net importer of energy, India faces direct pressure on its current account deficit and inflation when oil prices remain volatile, which can dampen economic momentum.
Another critical factor for investors to track is the interest rate trajectory set by the Reserve Bank of India (RBI). There are expectations for further repo rate hikes in the range of 50 to 75 basis points. Higher interest rates typically increase the cost of capital for businesses and can reduce liquidity, which often acts as a headwind for stock market performance. Consequently, the focus for the market will likely remain on how the central bank manages the balance between curbing inflation and supporting economic growth.
Moving forward, the narrative for Indian equities is shifting away from speculative gains toward a focus on fundamental strength and quality. For investors, the next important indicators will be the stability of crude oil prices, the RBI’s monetary policy decisions, and whether the anticipated moderation in global AI-focused spending actually results in a sustained shift of capital toward emerging markets.