India spent years climbing the global equity rankings, reaching the fourth-largest stock market in the world with a market capitalization of roughly $4.3 trillion in early 2024. Now that position is under threat, and the culprit is one India knows intimately but from the wrong side: artificial intelligence.
Taiwan and South Korea, home to the companies actually building the silicon that makes AI possible, have seen their markets surge on the back of insatiable demand for chips. India, whose tech sector is built on services rather than semiconductors, is finding that being good at deploying AI talent doesn’t translate into stock market momentum the same way manufacturing the hardware does.
The hardware advantage India doesn’t have
Taiwan has TSMC, the company that fabricates the vast majority of the world’s most advanced chips. South Korea has Samsung Electronics and SK Hynix, which dominate the high-bandwidth memory market that AI data centers devour in bulk. Foreign flows have tilted heavily toward Taipei and Seoul as fund managers chase direct exposure to AI hardware revenue.
India, by contrast, built its tech reputation on IT services. Companies like Infosys, TCS, and Wipro made fortunes helping Western corporations manage their back-office operations, migrate to the cloud, and maintain legacy systems. The Nifty IT index captured this anxiety in stark terms, suffering a 21% decline in February 2024. That was the largest drop since 2008, driven by fears that AI could automate significant portions of the traditional IT outsourcing model that Indian tech giants depend on.
A tale of two AI stories
The irony is that India is genuinely strong in AI, just not in the way stock markets are currently pricing. The country holds around 16% of the global AI talent pool and ranks first worldwide in AI skill penetration.
But talent doesn’t show up on a stock exchange the same way a fab does. TSMC’s revenue surges are directly tied to Nvidia’s AI chip orders, which are directly tied to the hundreds of billions being spent on AI data centers. India’s AI story, by comparison, is diffuse — spread across services firms trying to pivot, startups that haven’t IPO’d yet, and a domestic AI market that’s growing but hasn’t produced the kind of single-stock flagship that Taiwan or Korea can point to.
Global index weight is ultimately a function of market capitalization, and market capitalization follows capital flows. When the dominant investment theme of the era — AI infrastructure — maps neatly onto Taiwanese and Korean blue chips but not Indian ones, the money moves accordingly.
What this means for investors
The potential ranking shift matters beyond national pride. Index positioning influences passive fund allocations, ETF weightings, and the amount of institutional capital that flows into a market almost automatically. If India slips out of the top five, it could trigger a subtle but meaningful reduction in the kind of passive inflows that have helped support valuations in Mumbai.
Foreign institutional investors chasing AI exposure have a much cleaner path through Taiwan and Korea. India’s services-heavy composition becomes a headwind in a market where AI momentum drives marginal capital allocation decisions.
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