The Indian markets have had a rough ride thus far in 2026. After initial bumps on account of tariffs and AI-led concerns, the markets now face a double whammy of elevated energy prices and capital outflow by foreign investors. Chairman of Rockefeller International, Founder & CIO of Breakout Capital and acclaimed author Ruchir Sharma says lack of AI infrastructure is one of the biggest reasons why foreign investors are indifferent towards India at the moment.
Speaking to Anant Goenka, Executive Director, The Indian Express Group at the Express Adda, the celebrated market guru listed out the main catalysts for foreign investment not coming to India and how America is able to get away. He also highlighted the ideal asset allocation at the moment and looked into the crystal ball to forecast the future of IT companies in India.
#1 Why are FIIs indifferent to India
Foreign fund outflows have been one of the biggest concerns for our markets lately. Foreigners, in the last couple of years, have sold $50 billion in the stock market. Sharma believes that this is because “the entire world today has a mono-maniacal focus, which is AI. The focus is on the winners of AI and the losers of AI. Unfortunately for India, in contrast to what happened during the tech boom (1999-2000), most foreigners have taken the view that India is a loser in the AI context.”
He explained that the current focus is on AI infrastructure. “The picks and shovels, semiconductors, memory, and the compute. That’s the phase. It is a mad dash going on for that. India, unfortunately, just does not have that, as per the sentiment among foreign investors.”
Given the outflows from the equity market, 0 net FDI, he believes one can’t argue with the data. But the question is, why are foreigners doing this? “The main reason foreign investment is not coming to India today is that their entire focus is on AI. That’s also something that’s helping America continue to get away. India, unfortunately, is not seen to have any AI plays at this stage. This can change. We can get to a different phase of adoption, where India can end up becoming a beneficiary of AI. But the current reality is this,” he explained.
#2 R&D spend a game-changer
India is at a relatively early stage of AI adoption, and one reason for it, as per Ruchir Sharma, is the lack of adequate spending for research and development.
According to him, “I have never seen such indifference towards India. This is because they are focused on one thing for now, which is AI. Whether you have it or not. Here, the structural weakness for India shows itself up. The amount of money spent on India for R&D as a share of GDP is 0.6%. Korea and Taiwan, which are among the biggest beneficiaries of the AI boom, spend about 4-5% of their GDP on R&D.”
“You see a desperate run to win the AI arms race. The biggest beneficiaries are countries which have the infrastructure,” he added.
#3 India – The ‘anti-AI’ play
He elaborated how among the financial crowd globally, “India is called the anti-AI play. At this point in time this is the reality. But I believe this too shall pass. You can’t have the entire global economy run on just one factor. But it is a reality for the moment.”
He believes that “consumption (theme) may eventually play out. If you are a true contrarian, this could be the time to play India. But that’s a view. The reality is what I am talking about now.”
#4 The future of Indian IT companies
As a result of the AI-led disruption fears, the IT stocks have seen significant correction in 2026 so far. What’s the future of Indian companies? According to Ruchir Sharma, “They will be there. The big ones have an opportunity to reinvest themselves. But currently I have no money invested (in that space).”
#5 India a difficult place to do business
Another reason why private capital investment is still not picking up in India is perhaps the onground difficulties while doing business in the country. Sharma highlighted how India is “still a very difficult place to do business on the ground. Whether it is the regulatory framework, investigative agencies, it is a difficult place. India consistently disappoints the optimist and the pessimist. In terms of valuation, India is still the third highest. China is still among the cheapest.”
#6 The Energy crisis and the global lack of initiative
It has been exactly two months since this escalation has started, and in these two months long-term interest rates have gone up everywhere. Sharma explained that normally, during a crisis, interest rates tend to come down.
However, that’s not the case this time despite some sense of crisis. “That is telling you something – that concerns are growing that you don’t have enough money and you will keep coming to the market more and more to borrow. The ability for us to withstand higher oil prices with the government giving handouts is limited,” he added.
He pointed out that “if crude prices remain elevated, even America will suffer, but Europe and Asia will suffer more.” I think this is where I feel there is a lack of responsibility, especially from Europe. Their argument is America created the problem. But it is impacting Europe. I wish these countries would take more initiative to put pressure on Iran/US to try and open that Strait. Because the fact of the matter is hurting them the most.”
According to him, “global powers, Europe, China they need to have a greater sense of urgency that we need to see the end of this rather than saying America created it and letting them sort it out. Every single day that this (US-Iran conflict) lasts, the biggest casualties are countries in Europe and Asia.”
Ruchir Sharma’s asset allocation strategy
When posed with the question about how he would invest $1 million dollar, Sharma outlined a strategy comprising investment in equities, commodities and bond.
“You begin with America and figure out how much to invest in America and then the rest of the world. Basic asset allocation rule is – we typically put 60% in global equity, 20% in inflation hedges, and 20% in deflation hedges.”
According to him, “bonds, especially government bonds, are set to deliver the worst returns in the next few years, put the least to earn your interest. 60-40 was the normal equity-bonds investment. But now fixed income is unlikely to do well, inflation is going to pick up. So invest 20% in bond and 20% in inflation protected assets, gold, commodities and the like.”
Commenting on the strategy for gold, he pointed out that he has “always liked gold, but the problem is it is everyone’s favourite at the moment. I am not very inclined to buy more at the moment. It should still be 4-5% of everyone’s portfolio. Won’t advise more than that for now.”
Conclusion
The conversation progressed and addressed a gamut of topics from politics to infrastructure development. Speaking on the Indian markets, Sharma expects reasonable returns from the market provided one is ready for “long periods of no action.” Given the pace of GDP and economic growth, he is hopeful that the markets are on track to deliver reasonable returns over 5-10 years
Source: Financial Express
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