As global investors continue to crowd into artificial intelligence-driven markets, India’s relative detachment from that trend has left it out of favour, Barron’s writes. Yet that same lack of correlation could restore its appeal in 2026, particularly for portfolios seeking diversification from US equities.

India’s equity market has lagged sharply this year. While emerging markets as a whole have risen strongly, Indian stocks have delivered little return, reflecting both global capital flows towards technology-heavy markets such as China, Taiwan and South Korea, and domestic headwinds. A steep US tariff on Indian exports and a weaker rupee have weighed on sentiment, prompting investors to question whether India still warrants allocation.

Longer term, many fund managers argue the answer remains affirmative. Valuations, historically a constraint for Indian equities, have eased following the recent underperformance. The market now trades below its recent average earnings multiple, improving its relative attractiveness.

According to Barron’s, Policy support has also strengthened. The government has moved to streamline the national goods and services tax, while the Reserve Bank of India has cut interest rates aggressively. Together, these measures have lifted official growth forecasts and begun to revive corporate earnings expectations, particularly among the country’s largest listed companies. Market participants also point to the possibility of a reduction in long-term capital gains tax as an additional catalyst.

Meanwhile, trade tensions with Washington have not deterred major US technology groups from committing capital to India’s digital infrastructure. Substantial investment pledges linked to artificial intelligence and data capacity underline confidence in the long-term potential of India’s young and expanding consumer base. Such inflows could provide support for the currency and help offset the drag from tariffs.

Against this backdrop, investors are selectively reassessing opportunities. Large private-sector banks are attracting attention for their expanding consumer franchises, while domestic manufacturers are benefiting from strong demand for higher-margin vehicles. Some see value emerging in IT services companies, whose shares have fallen sharply amid fears that AI will erode traditional outsourcing revenues, but which may yet deliver margin improvements.

Risks remain. Chinese equities continue to trade at lower valuations and offer broader exposure to advanced technologies, while India’s trade dispute with the US is likely to linger as a political overhang. For now, many investors remain cautious.

Still, should enthusiasm for AI-driven assets cool, India’s steady growth profile and improving fundamentals may once again command attention.