Global capital flows are experiencing a dramatic AI-driven realignment toward the United States, creating significant challenges for India’s foreign direct investment landscape, according to Manish Chokhani of Enam Holdings. “India, like many others, has seen foreign direct investment flows slow down as funds are pulled into the US by policy diktat,” Chokhani explained, highlighting a fundamental shift in international investment patterns.
AI Investment Magnetism Reshapes Market Priorities
Artificial intelligence has emerged as the dominant force steering investor enthusiasm across global markets, from American tech giants to Chinese markets following DeepSeek innovations. Chokhani’s assessment is stark: “If you don’t have an AI play, nobody is really interested.” This trend underscores how AI-linked entities and industries are capturing unprecedented investor attention, fundamentally altering traditional investment criteria.
The shift extends beyond technology sectors, influencing broader capital allocation strategies as investors prioritize companies demonstrating clear AI integration potential over conventional business models.
Hard Assets Provide Alternative Investment Haven
While AI attracts mainstream capital, traditional hard assets including gold, silver, and uranium are experiencing renewed investor interest as hedging mechanisms. These commodities are gaining value amid currency fluctuations and energy transition investments, with performance levels rivaling Indian equities’ returns over the past two decades.
This diversification strategy reflects investor caution about concentrated AI investments and desire for portfolio stability during geopolitical uncertainty.
Indian Markets Show Resilience Despite Valuation Concerns
Despite global investment realignment, India’s markets maintain strength through consistent retail investor inflows approximating $3 billion monthly. However, elevated valuations present ongoing challenges, with earnings growth at 9% while P/E ratios range between 20-21.
“Retail investors are keeping markets strong,” Chokhani affirmed, highlighting domestic investor confidence despite reduced foreign institutional participation.
The sustained retail participation provides market stability but raises questions about long-term sustainability given current valuation metrics.
Financial Sector Transformation Expected by 2027
Chokhani predicts substantial changes for India’s financial sector by 2027, anticipating major banks including SBI, ICICI, and Axis Bank will surpass traditional market leaders like Reliance and Infosys in profitability metrics.
“The index will need reconstitution…financial services are set for a major change,” Chokhani stated, identifying AI as a pivotal force for banks and financial institutions leveraging extensive data repositories.
This transformation reflects AI’s potential to drive operational efficiency gains and create competitive advantages for data-rich financial institutions.
Strategic Capital Allocation in AI-Driven Markets
The current environment demands sophisticated investment strategies balancing AI exposure with traditional asset diversification. Financial institutions positioned to harness AI capabilities while maintaining data security will likely outperform peers lacking technological integration.
Investors must navigate between AI enthusiasm and valuation discipline, particularly in markets experiencing reduced foreign capital inflows while maintaining elevated domestic demand.
For Business Leaders
- Diversify: Investments across AI-driven enterprises and hard assets to balance portfolio risk while monitoring US capital movement policies affecting international flows.
- Seize: Financial sector innovation presents significant opportunities, particularly for institutions developing AI-powered efficiency improvements.
- Prepare: Market reconstitution preparations become essential as traditional sector leadership faces disruption from technology-enabled financial services transformation.
