Indian stocks gain 1% amid global AI meltdown

Investors have found solace in Indian equities as the global artificial intelligence trade has faltered. The NSE Nifty 50 Index surged by up to 1.2% on Friday, bucking a sell-off that left every other major Asian market in the red. As US midterm elections prompted a reevaluation of AI stocks, Indian equities were set to post their largest weekly gain in over five years.

This shift in fortunes comes after India's historically low exposure to AI investments made its stocks among Asia's worst performers. However, as the AI trade appears to be unraveling, this weakness has turned into a positive for the Indian market. Global funds are returning, helping to narrow year-to-date losses, while declining oil prices and an improving earnings outlook are enhancing the market's appeal.

Charlie Hong, founder and chief investment officer at LOGOS Asset Management, believes that "the trend will sustain for the medium term only if earnings continue to recover." Foreign investors have poured a net $1.9 billion into local shares this week, while preliminary figures for Thursday showed a net inflow of $1.6 billion. They have also reduced their bearish wagers, with short positions on index futures on the National Stock Exchange of India falling by more than 100,000 contracts this week.

The surge in inflows has propelled Indian equities into the ranks of the world's top performers this week, strengthening the rupee, which neared a record low last month. The currency rose as much as 0.6% to 93.8687 against the dollar, the strongest since April.