Wood said India has become the “reverse AI trade” within global emerging markets.
“(It) is another way of saying it should outperform if the AI trade suddenly unwinds, which would be a negative for Taiwan, Korea and China (in that order),” he said in the note. “These three countries currently account for 61.8% of the MSCI Emerging Markets Index while India accounts for 15.3%.”
Wood said one area of AI vulnerability in India remains the IT services sector, where the revenue growth of the listed companies slowed to 4% in FY25 and 1.6% YoY in 2QFY26 ended 30 September, leading to a resulting de-rating.
The BSE IT Index now trades at an estimated Price to Earnings (PE) Ratio of 23 times, down from 31 times in mid-December.
Wood said the biggest risk to his base case that the rupee has bottomed out is the handouts in state election politics.”The growing populism at the state level is reflected in a fiscal situation which looks much healthier at the “centre” than at the level of the states,” he said. “The central government deficit is forecast to decline to 4.4% of GDP this fiscal year. Still, the situation is a much less healthy 7.5% of GDP if the states are included.”
