Indian equities traded higher on Friday, with the Nifty 50 rising 0.34% to 24,279 and the BSE Sensex adding 0.38% to 78,290 in morning trade. Both indices have gained about 1% so far this week, following a sharp 6% rally last week — their strongest weekly performance in over five years. Market breadth remained strong, with 14 of the 16 major sectors advancing, while broader markets also participated with mid-cap and small-cap indices rising around 1% each. According to BW Businessworld, VK Vijayakumar, Chief Investment Strategist at Geojit Investments, notes a significant trend: "The strength of the mid and small caps relative to the large caps. Fear of FIIs again turning sellers on rallies is weighing on large caps. In the near-term, therefore, the broader market may do better aided by the fund flows and retail buying in the segment."
India's stock market valuations are broadly attractive right now, but the bigger challenge is not cheap stocks — it is the global narrative around artificial intelligence pulling foreign capital away from emerging markets like India. According to The Economic Times, Manish Gunwani, Chief Investment Officer for Equity at Bandhan AMC, sees a structural shift underway in how global investors are allocating money. Globally, enormous amounts of capital are chasing AI-linked stocks — from American tech giants to South Korea's SK Hynix, Taiwan's TSMC, Samsung, and even mid-sized Chinese companies offering AI services that are now worth thirty to forty billion dollars. India simply does not have that story. It lacks large AI companies and it also lacks the commodity exporters that are benefiting indirectly from AI-driven capital expenditure.
Gains were capped by weakness in IT and insurance stocks, with the IT index slipping 0.2% led by a 3% fall in Wipro after the company reported subdued quarterly results and flagged muted demand from U.S. banking and financial clients. Shares of HDFC Life Insurance declined 3.2% after the company reported a drop in new business value for the quarter, despite a marginal increase in profit. Both stocks were among the top losers on the Nifty 50. As per BW Businessworld, the IT sector weakness reflects ongoing challenges in the services export sector, which may be impacted by AI-driven automation and global capital reallocation away from traditional IT services.
For foreign institutional investor interest to return meaningfully, Gunwani sees two possible triggers. Either the global AI theme slows down, making India relatively more attractive, or India delivers significant structural reforms — think strategic divestment or changes to land and labour regulations — that generate fresh excitement. Without one of these, FII flows are likely to remain tepid. According to The Economic Times, Bandhan AMC has been actively deploying cash despite global headwinds, with their preferred structural theme being manufacturing exporters. If AI gradually erodes India's services exports, the policy and currency response will eventually favour manufacturers.
One of Gunwani's more distinctive calls is his preference for smallcaps over largecaps on a three to five year view. His argument is that the largecap index was built for an era — roughly 1990 to 2020 — defined by consumption growth, services exports, a strong dollar, and a stable unipolar world order. That world no longer exists. Demographics are peaking, geopolitics is multipolar, and new themes are emerging that are better represented in the smallcap space. Smallcaps offer more variety, newer themes, and often cheaper valuations within the same sectors. Looking ahead, analysts expect the Nifty 50 to trade in the range of 23,400 to 24,400 in the near term, as investors assess geopolitical developments and upcoming earnings from key lenders such as HDFC Bank and ICICI Bank.
