Billions in AI Investment Shifts Overseas as India Fails to Capitalize on Emerging Technology

Global Semiconductor Companies Attract $1.75 Trillion from Foreign Institutional Investors

Foreign institutional investors (FIIs) have accumulated approximately $1.75 trillion in Samsung Electronics, Taiwan Semiconductor Manufacturing Co. (TSMC), and SK Hynix, outpacing their exposure to India's equity market by a significant margin, estimated at around $750 billion. This disparity highlights India's relative underperformance over the past two to three years, as noted by veteran fund manager Samir Arora.

Foreign Outflows Widen Divergence

FIIs have been net sellers of Indian equities in recent years, resulting in cumulative outflows of $30 to 35 billion (Rs 2.5 to 3 lakh crore) between 2024 and 2026 year-to-date. In calendar 2026 alone, net selling has already exceeded Rs 1 lakh crore ($12 to 13 billion), including Rs 56,000 to 70,000 crore ($6.5 to 8 billion) in March.

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AI Boom Skews Global Allocation

The shift in foreign investments is driven by India's limited participation in the global artificial intelligence (AI) investment cycle. AI has emerged as a dominant theme in global markets, re-rating semiconductor and platform companies, particularly in the US and parts of Asia. This has skewed foreign allocations toward markets such as South Korea and Taiwan, which host globally competitive chipmakers and AI-linked supply chains.

India's Limited AI Exposure

India offers few listed companies that provide direct exposure to the AI value chain, despite policy efforts such as the India Semiconductor Mission. Large-scale investments and listed opportunities remain limited, reducing India's appeal in global portfolios.

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Double Hit: No AI Winners, Rising AI Risks

The absence of investable AI themes has reduced India's appeal in global portfolios, while increasing uncertainty in its technology ecosystem. India's technology sector, employing around 5.8 to 6 million people and generating approximately $222 billion in software and IT services exports in FY25, faces potential disruption from generative AI and automation.

Managing Director of Kotak Mahindra Asset Management Company, Nilesh Shah, described AI as a potentially "opportunity of a lifetime or the risk of a lifetime for India — depending on how we position ourselves." He warned that rapid adoption of AI could disrupt segments such as programming, BPO/KPO, and enterprise services, potentially eroding a chunk of foreign exchange revenues.

Will FII Outflows Accelerate?

In the near term, the key question for markets is whether foreign selling could intensify amid additional pressures, including rising crude prices and supply disruptions. However, Lakshmi Iyer, Group President (Investments) and CEO of Bajaj Alternate Investment Management, believes that FII selling alone may not pose a systemic risk, as foreign investors are already at decade-plus lows in MSCI India weightings and remain "significantly under-owned."