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The Sensex closed at 82,831 on February 20, capping a week of near-flat returns that encapsulates the broader puzzle: India’s economy is growing, its corporate earnings are expected to inflect sharply upward, and the government just outlined a $200 billion AI infrastructure investment target — yet foreign investors keep selling and the market refuses to move. A $17 billion venture capital commitment announced at the India AI Impact Summit adds another layer to a story that is part macro drag, part structural opportunity.
The Disconnect Between Data and Tickers
India’s benchmark indices have effectively gone sideways for months. The Sensex delivered just 8.5 percent in calendar 2025 — underperforming the Dow Jones, Nikkei 225, and even China’s SSE Composite — while nearly 69 percent of listed companies with market capitalisations above ₹100 crore posted negative returns, according to Carnelian Capital’s year-end review. Foreign institutional investors pulled a record $18 billion out of Indian equities across the year (per National Securities Depository data), pushing foreign ownership to a roughly 15-year low of 17 percent. The rupee touched an all-time intra-day low near 92 against the dollar during the correction. Domestic institutional investors absorbed the selling with over ₹7 trillion in inflows — an all-time high — but the FII overhang continues to suppress sentiment.
Yet the underlying growth trajectory remains compelling. Market analyst Karthikraj Lakshmanan projects both GDP and corporate earnings will achieve double-digit growth by fiscal year 2027, a view that broadly aligns with consensus: Carnelian Capital expects Nifty 50 earnings growth of 12–15 percent this year after a muted 3 percent in CY25/FY26, while Morgan Stanley’s base-case Sensex target for December 2026 sits at 95,000 — implying roughly 15 percent upside — with a bull case of 107,000. Jefferies’ Christopher Wood considers a Sensex at 100,000 achievable if cyclical earnings pick up. The India-US trade deal announced in late January, which cut reciprocal tariffs on Indian goods from 25 to 18 percent, provided a brief jolt — the Nifty surged 1,200 points intraday on February 3, per Goodreturns — but momentum faded within days. The contrast with South Korea’s Kospi, which blasted past 5,500 on semiconductor tailwinds, underscores how India’s market is waiting for a catalyst that hasn’t arrived.
The $200 Billion AI Bet
That catalyst may be emerging from an unlikely corner: physical infrastructure for artificial intelligence. At the India AI Impact Summit in New Delhi on February 17, IT Minister Ashwini Vaishnaw announced that India expects to attract more than $200 billion in AI-related investment over the next two years, spanning the full five-layer stack — from data centres and GPU compute to models, applications, and energy, according to Bloomberg and TechCrunch reporting. Of that figure, roughly $90 billion has already been committed (per The Tech Portal’s analysis of summit disclosures), including Adani Group’s $100 billion data-centre buildout target through 2035 in partnership with Google and Microsoft. An additional $17 billion in venture capital commitments was announced at the summit, targeting deep-tech startups across the AI value chain, Business Today reported.
The government is backing the push with policy. Under the ₹10,372-crore IndiaAI Mission, 38,000 high-end GPUs are already deployed at a subsidised rate of ₹65 per hour for startups and researchers — and 20,000 more will be added in coming weeks, Vaishnaw confirmed. India’s 51 percent clean-energy share in total generation capacity gives it a structural advantage in attracting AI workloads that face growing scrutiny over power consumption in the US and Europe. Capital markets are increasingly positioned to finance the buildout: India’s REIT and InvIT markets, while still small relative to global peers, have matured rapidly, and the broader reshaping of global supply chains away from US dependency is steering infrastructure capital toward Asia.
Selective Entry, Not a Broad Rally
Lakshmanan recommends a bottom-up stock-selection approach, favouring financials and select mid-caps. The advice resonates with the data: bank earnings have held up better than the broader market, and Nifty 50 valuations have corrected from a peak of roughly 25 times FY26 earnings to around 20 times trailing 12 months — closer to historical norms, Carnelian’s analysis shows. Mid- and small-cap segments have seen an even sharper valuation reset after their 2024 excesses. If FII flows reverse — which Carnelian’s outlook considers likely as US rates trend lower and India’s emerging-market overweight reaches multi-year lows — markets could see an additional 3–5 percent re-rating on top of earnings growth, potentially translating into 15–20 percent total returns for the year.
The disconnect between tickers and fundamentals will not last indefinitely. Whether it closes through an earnings inflection, an FII reversal, or the sheer gravitational pull of $200 billion in AI infrastructure capital remains the central question for Indian markets in the second half of 2026.
