Indian equities look more attractive as AI spending concerns ease, says Uday

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Expects FPI flows to stabilise as AI capex frenzy eases; sees another 50-75 bps rate hike

By BL Mumbai Bureau

Updated - November 05, 2026 at 02:52 PM.

FILE PHOTO: Veteran banker Uday Kotak says Indian equities offer higher growth potential as their relative valuations become more attractive. | Photo Credit: SHASHANK PARADE

Indian equities are no longer as expensive as they were a year ago relative to other markets, making them more appealing as concerns over excessive AI-related spending weigh on global investors, veteran banker Uday Kotak said. “India is not looking as expensive as it did six months to a year ago on a relative basis compared to other markets. And, of course, India offers higher growth,” he said.

Foreign investors may return as valuation concerns ease

In his Diwali message to stakeholders, the veteran banker said foreign investors had reduced exposure to Indian equities over the past year as valuations appeared richer than those in several other markets, while the AI-driven rally in the US attracted a significant share of global capital.

“The markets have been rocky as global institutions withdrew significant amounts of money due to the relatively higher valuations of Indian markets compared to other countries, where equities were trading at lower multiples,” he said.

AI spending concerns could influence global capital flows

While AI is reshaping the global economy, Kotak cautioned that the leverage some companies are taking on to fund AI ambitions has, in many cases, resulted in “significant overvaluation”. As concerns around excessive AI spending begin to subside, India could benefit from a reversal in capital flows, he said.

“As the overhang of excessive investment in AI capex eases, we hope foreign portfolio investment flows will stabilise,” Kotak said. Foreign portfolio investors continue to hold around $700 billion in Indian assets, making domestic markets sensitive to shifts in global risk appetite and capital flows.

He also highlighted domestic investors’ resilience despite heightened market volatility. “We have seen phenomenal resilience from Indian retail investors. They have maintained their faith in the equity markets,” Kotak said.

Higher oil prices and interest rates remain key risks

On the macroeconomic front, Kotak warned that higher oil prices resulting from tensions in the Middle East remain a key risk for India, given its dependence on energy imports. He also expects monetary tightening to continue, projecting another 50-75 basis points of increases in the RBI’s repo rate, which could put further pressure on bond yields.

Kotak advises investors to focus on quality and the medium term

Advising investors to remain disciplined, Kotak said, “Think medium term, think strategically and focus on the quality of the companies you invest in,” while cautioning derivative traders to maintain adequate liquidity to navigate periods of market volatility.

Published on November 5, 2026

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