Allspring Global Investments expects India to regain market attention as AI spending growth moderates globally. Prashant Paroda, Portfolio Manager-Emerging Markets at Allspring, explains that the key question with AI is how much the $1 trillion of spending can scale from here, with clearly slowing year-on-year growth numbers expected. As per CNBC TV18, he notes that once AI growth numbers slow down, the market will price that in and start looking at other opportunities, that's when India will come into the picture. The fund has selectively added infrastructure stocks in India while maintaining exposure to financials, with Paroda stating that the AI trade is clearly dependent on these two leaders - OpenAI and Anthropic - and how they continue to scale their revenue. Anthropic has kept HDFC Bank because its ARR was around $9 billion at the end of the year, and now people are talking about almost four to five times that amount in just six months, highlighting the rapid scaling potential in the sector.
Christopher Wood of Jefferies warns that the AI trade is showing clear signs of 'fatigue' as investors seek cheaper value opportunities. In his latest newsletter 'GREED & fear', Wood writes that the new quarter has opened 'with much talk of 'AI fatigue' as investors look out for a peaking out of momentum and rotation into cheaper 'value' names which have not been part of the AI trade'. He argues that sharp pullbacks in Korea's AI leaders are 'both natural and healthy' after 'hyperbolic moves', with the Kospi now down 22% from its 19 June peak and single-stock leveraged ETFs on SK Hynix and Samsung Electronics dropping around 30% from asset highs. Wood highlights just how extreme the AI run-up has been: since the start of 2023, a market-cap-weighted basket of Micron, SK Hynix and Samsung Electronics has surged about 760%, versus a 180% gain for a basket of Alphabet, Amazon, Meta and Microsoft. The upcoming quarterly earnings of major US technology companies will be the next key test for the AI investment cycle, with four major US hyperscalers - Alphabet, Amazon, Meta and Microsoft - due to announce results on 22 July.
Against the backdrop of stretched AI capex financing, Jefferies is deliberately tilting its Asia Pacific ex-Japan asset allocation toward markets less dominated by AI momentum. In its latest GREED & fear note, the firm assigns India a 12% recommended weight versus a 10.9% benchmark weight in the MSCI AC Asia Pacific ex-Japan index, giving India a positive mismatch of 1.1 percentage points. Wood's message is that markets like India, which host 'cheaper value' names which have not been part of the AI trade,' are well positioned to benefit from any sustained rotation out of momentum AI names. China is the other key leg of Jefferies' rotation, with Wood stating that 'it is too late to sell MSCI China or indeed Hong Kong,' arguing that this is 'precisely the area that should benefit from any mean reversion out of momentum AI names'. The report notes that large US technology companies have underperformed the broader market in recent months, with concerns over AI monetisation increasing.
Despite renewed concerns around the US-Iran conflict this week, none of the major global brokerages has materially lowered its medium-term India earnings outlook or equity market view. As per Moneycontrol, analysts increasingly expect investors to look through what could be a soft June quarter and focus on the trajectory of earnings over the remainder of FY27. CLSA has turned more cautious on Indian equities following recent escalation in West Asia, advising investors to adopt a 'barbell' portfolio strategy rather than making aggressive directional bets. Vikash Kumar Jain, India Strategist & Head of India Research at CLSA, noted that 'uncertainty typically isn't really good for the market' and that the biggest challenge is uncertainty around how and when the conflict could end. However, the brokerage had turned constructive on India at the start of April and remained optimistic as recently as earlier this week, helped by falling commodity prices, lower bond yields and expectations of additional liquidity.
Perhaps the biggest shift in the Street's thinking is that concerns over demand have steadily faded. Jefferies expects June-quarter revenue growth to be the strongest in 13 quarters, supported by robust economic activity and higher nominal GDP. Excluding oil & gas and metals, earnings are expected to rise around 12 percent year-on-year, suggesting that topline momentum remains healthy even as profitability comes under pressure. Phillip Capital's estimates also point to resilient demand despite softer profitability, expecting Nifty companies excluding oil & gas to post 15% revenue growth, even as EBITDA growth slows to 2% and profit growth moderates to around 8%. JPMorgan expects double-digit earnings growth for Indian companies to remain intact, arguing that resilient revenue growth should help offset temporary pressure from higher raw material and energy costs.
The brokerages are urging investors to look beyond the June quarter. UBS argues that renewed tensions in West Asia are unlikely to alter the medium-term investment case for India, with its base case remaining that disruptions around the Strait of Hormuz will eventually ease. Morgan Stanley is somewhat more optimistic, saying strong high-frequency indicators leave room for positive earnings surprises during the results season even as consensus expectations remain measured. Leadership within the market is also becoming clearer, with financials featuring prominently across most global brokerage recommendations, supported by healthy credit growth and resilient balance sheets. Consumer discretionary continues to feature among JPMorgan's preferred sectors, while HSBC remains constructive on real estate alongside financials and select industrials. Allspring Global Investments is avoiding IT services for now, preferring to wait for better earnings visibility and management commentary before deploying fresh capital.
Tandon continues to prefer small-cap and micro-cap companies over mid-caps, arguing that the opportunity set remains deeper despite the need for greater scrutiny of management quality and cash-flow sustainability. Mid-cap stocks remain relatively expensive because of limited investible options attracting institutional money. The barbell approach of blending quality and sentiment remains favored globally, with eurozone equities having the potential to catch up as the peak of geopolitical stress is likely behind us and with rates expected to lower. Phillip Capital expects the strongest earnings growth from NBFCs, consumer durables, defence and organised retail, while oil & gas, cement, healthcare and metals could remain among the weakest performers this quarter. The message emerging from global brokerages is therefore less about a blockbuster June quarter and more about confidence in the broader earnings trajectory, with India positioned to benefit as AI spending growth moderates globally and China and other Asian markets gaining from the long-overdue rotation out of AI momentum.
