India stands to benefit on a relative basis than its North Asian counterparts as uncertainties around the US tech cycle and global flows intensify says Alexander Redman, Chief Global Equity Strategist at CLSA. He says India could regain traction depending on how the global AI trade evolves. If the current AI premium in US markets cools in an orderly way, flows are likely to retreat from Korea and Taiwan and rotate back into India. However, should the AI bubble burst in a disruptive manner, global risk aversion will rise and buying will pause everywhere though North Asian markets will bear the brunt of selling pressure. In both situations, India performs relatively better, Redman emphasises, because its domestic investor base is deep, sticky and valuation-agnostic.
Despite elevated valuations, Redmen remains modestly overweight on India at 15%, with scope to go up to 25% once positions in Korea and Taiwan unwind. India may not be the top emerging market performer in 2025, but in a world where AI exuberance fades and North Asian cyclicals tire out, it becomes a reliable relative outperformer buoyed by domestic liquidity, structural growth and policy stability.
While speaking at CITIC CLSA India forum 2025,he adds that the most important forces driving Indian equities remain domestic flows and structural growth. While foreign investors continue to focus on valuation, Redman points out that 85% of the market is now held by local investors, who are far less sensitive to price-to-earnings metrics. With capital controls in place and domestic monthly inflows of roughly Rs 3.5 lakh crore, foreign flows have become increasingly irrelevant. The real risk for India is not FII selling but a slowdown in domestic savings.
At the macro level, India is also entering a rate-easing cycle, supported by softer-than-expected inflation. A weakening US dollar and two to three expected rate cuts from the US Federal Reserve next year will give the Reserve Bank of India added room to reduce rates. Such an environment typically favours domestic cyclicals, particularly real estate, discretionary consumption and rate-sensitive pockets of the economy. Banks may not benefit as much due to net interest margin compression, but CLSA’s domestic team holds a contrarian positive view on IT outsourcing, expecting it to outperform gloomy expectations.
Globally, however, the single biggest uncertainty clouding equity markets remains the US tech cycle and the AI premium embedded in valuations. Redman believes the US market is overvalued, and the durability of the AI rally is an open question in market history. He does not expect a systemic crisis household balance sheets are healthier than pre-GFC levels, mortgage delinquencies are low, and many Americans are locked into ultra-low 30-year mortgage rates. As per him corporate balance sheets also look relatively stable and the worst of the commercial real estate scare has eased as cities rezone office districts into residential hubs.
But valuation excesses persist. AI investments have crossed roughly $1.5 trillion while producing negligible revenue so far. Redman warns that the market has become numb to the magnitude of these commitments, forgetting that “a trillion dollars is not the new billion”. Monetisation, not adoption, is the core concern depreciation cycles are aggressive, competition is rising, and financing costs are escalating. As companies face these pressures, the valuation gap is likely to narrow and could trigger a market correction sometime in early 2025, though Redman stresses this is a probabilistic guess, not a precise forecast.
