BlackRock, the world's largest asset manager with over $14 trillion in assets under management, has maintained a constructive stance on India despite recent market volatility. According to Reuters, Natasha Sarkaria, EMEA investment strategy lead of wealth at BlackRock, stated that India stocks are "over-punished" for lacking a direct AI play and for higher oil risks. The firm is positioned constructively on India rather than an "outright overweight", viewing the country as one of its highest-conviction, medium- to long-term emerging-market trades. "As long as India's GDP grows between 6% and 7%, that's a nice sweet spot for the economy to keep growing, keep expanding," Sarkaria explained, noting that this growth rate provides a "nice sweet spot" for economic expansion. With more than $14 trillion in assets under management globally, BlackRock views India as one of its highest-conviction medium- to long-term emerging market opportunities, supported by favourable demographics, infrastructure development, financial sector strength and indirect AI-related opportunities.
India's recent measures to improve debt market attractiveness include tax cuts for overseas bond investors and comprehensive steps aimed at boosting inflows and improving market access, as reported by The Economic Times. However, BlackRock remains cautious about immediate foreign inflow expectations, with Saigal noting that "the binding constraint remains the all-in FX hedge cost" for offshore investors. The world's largest asset manager emphasized that "the biggest practical overhang for offshore investors in India remains the Middle East trajectory and oil prices." While foreign inflows into Indian debt have accelerated following these measures, with some managers viewing the steps positively, particularly for India's case for inclusion in the Bloomberg Global Aggregate Index, BlackRock cautioned against expectations of immediate, one-way real money flows. "For many investors, the binding constraint remains the all-in FX hedge cost," Saigal explained, adding that the macroeconomic backdrop for India remains challenging with risk of inflation and strain on government finances. BlackRock has largely stayed out of the Indian market this year, and is not "meaningfully changing strategic exposure yet," according to CNBC TV18.
Volatile crude prices widen the range of outcomes for India's current account, inflation and the rupee, which in turn keeps currency hedging costs high and undermines the total-return profile of Indian bonds, according to The Economic Times. While hopes of a peace deal with Iran have prompted a pullback in oil prices, a protracted conflict and lack of a durable resolution continue to inject uncertainty into oil markets, keeping investors wary of the risks to India's external balances and currency. "Greater geopolitical clarity would go a long way toward making investors more comfortable underwriting rupee risk and re-allocating back into Indian bonds at what are increasingly attractive yields," Saigal noted. The "Goldilocks" mix of benign inflation and strong growth that India previously enjoyed has been disrupted by the Iran war, making the country particularly vulnerable as India is the world's third-largest oil importer. Lighthouse Canton's constructive near-term view on Indian markets is conditional on crude remaining at around $90 a barrel, with oil near $90-$94 being manageable, but $120-$130 threatening macro stability and earnings. "Although, less monsoon-sensitive sectors could offer shelter," Laijawala noted. If geopolitical tensions ease and oil prices retreat, few markets stand to benefit as much as India, with such a move potentially triggering a wave of foreign buying into Indian equities.
Despite India's recent market challenges, Lighthouse Canton's chief investment officer Abhay Laijawala suggests that India's lack of AI exposure could prove an "advantage of absence" in the current market environment. According to The Hindu BusinessLine, foreign investors pulled out funds worth a record $30 billion from equities so far this year, with domestic benchmarks Nifty 50 and Sensex down about 11% and 13% respectively in 2026. The heavyweight IT index tanked 27% as fears of AI-led disruption weighed on markets, while South Korea and Taiwan overtook the Indian market in terms of market capitalisation in the past month. However, when sector concentration reaches such levels, investors tend to fatally underprice the possibility that a risk could emerge from outside the core business model. India offers a deep, listed universe tied to the next phase of AI spending, such as power, data centres, electrical equipment, cooling systems, engineering and capital goods, with "We have plenty of picks and shovels," Laijawala explained. Lighthouse Canton favours capital goods, engineering, power, electrical equipment, defence, healthcare, pharma and large banks, with banks standing to gain as a revival in capex shifts credit demand from consumers to corporates. The best opportunities lie beyond the Nifty, where earnings momentum remains stronger despite more attractive benchmark valuations.
India's market capitalisation has fallen behind AI-driven markets such as Taiwan and South Korea as investors shifted towards semiconductor and chipmaker stocks, according to Reuters. This market rotation reflects the current focus on AI-related investments, though BlackRock argues that the market rotation away from India has been excessive. While India may benefit from AI trade cooling in the near term, experts emphasize that longer-term structural questions remain unanswered. As noted by CNBC TV18, competitiveness concerns persist as investors compare Indian companies with Chinese businesses that have achieved scale and global competitiveness at fractional valuations. Chadha highlights that India's demographic dividend becomes a liability if job creation does not keep pace, raising questions about employment generation and competitiveness. Paroda notes that many Chinese businesses trade at a fraction of Indian valuations while returns on capital are improving, creating legitimate concerns about India's premium valuation relative to other emerging markets. Despite these challenges, much action is happening beneath the index with mid-cap manufacturing and healthcare companies performing well, and the composition of the index expected to change over the coming decade similar to the 1990s shift from conglomerates to private banks and IT services companies.
