Will India be the next big winner? Chris Wood bets on ‘reverse AI trade’ as risks linger

India could find itself in a relatively better spot if the global rally driven by artificial intelligence (AI) investments begins to cool off, according to Christopher Wood. But the veteran strategist is not calling it a one-way move, warning that risks—both global and domestic—are still very much alive.

In his latest GREED & Fear note, Wood pointed out that India’s current positioning is quite different from markets that have been at the centre of the AI frenzy. While global investors have poured money into tech-heavy markets riding the AI wave, India has largely been on the receiving end of foreign outflows this year. That, in a way, may now work in its favour.

A different place in the cycle

Wood describes India as a “reverse AI trade”. Put simply, it hasn’t been the primary beneficiary of the global AI boom so far. Instead, foreign investors have trimmed exposure, leading to some cooling off in valuations. This shift is important.

If the pace of AI-related capital expenditure globally starts to slow, money could begin to move out of crowded trades and into markets that have lagged. India, in that scenario, stands to gain from a relative-return perspective rather than an absolute surge.

Foreign selling already done

Another point Wood makes is that a large part of foreign selling may already be behind us.

Over the past few months, overseas investors have cut positions in Indian equities, contributing to market weakness earlier in the year. While that does not eliminate downside risk, it does mean that positioning is no longer as stretched as it once was.

In other words, the market may have already absorbed some of the pressure.

But it’s not risk-free

Even with this constructive angle, Wood is clear that India is not insulated from shocks.

One of the key risks he flags is a fresh flare-up in tensions involving Iran. Any escalation in the region could have a knock-on impact on global sentiment and commodity prices, particularly oil, which in turn affects India.

The second risk is closer to home—and arguably more important.

Domestic mutual fund inflows have been a steady source of support for the market, especially at a time when foreign investors have been sellers. If that flow were to slow down abruptly, it could remove a crucial cushion for equities.

A balanced view

Wood is not turning outright negative on India. He continues to hold a constructive view in relative terms, especially when compared to markets that have already seen a strong run-up on the back of AI optimism.

At the same time, he is not ignoring the fact that markets rarely move in a straight line.

India’s case today rests on a mix of factors—moderating valuations, lighter foreign positioning, and the possibility of global capital rotation. But these positives sit alongside clear risks that investors will need to track closely.

The takeaway

The message from Wood’s note is fairly straightforward. India may not have led the AI rally, but that could turn into an advantage if the cycle begins to shift. Still, the market’s direction will depend just as much on external triggers and domestic liquidity as it will on global themes.

For now, India looks better placed than it did a few months ago—but it’s not out of the woods yet.