In his latest GREED & fear note, Wood says the most likely trigger for a rotation back into India is a sudden conviction that the semiconductor cycle has peaked, something he believes global investors do not yet have.
He links this to the “unwind of the AI trade in the US, and the related collateral damage for private equity and private credit”, which he continues to view as “the biggest risk facing equity markets in coming months”.
“The more the returns on the AI capex are questioned, and the more there is a question mark over the continuing willingness to finance that capex, the more it will become a real possibility that 2026 will mark the peak year for AI capex,” Wood writes, pointing to guidance from the four major hyperscalers for an “enormous US$620bn in capex this year.”
Foreign investors have sold a net $32.7 billion of Indian equities since October 2024, despite turning small net buyers to the tune of $1.7 billion in February 2026. Wood argues that as long as global money is still crowding into hardware and semiconductor names tied to the AI theme, India will struggle to see a decisive allocation shift back in its favour.
Reflecting this view, he notes that GREED & fear is now Underweight both Taiwan and Korea in the Asia Pacific ex‑Japan relative‑return portfolio, even while still holding single‑stock positions in Samsung Electronics and TSMC in long‑only mandates.
The second condition that could draw FIIs back is a sizeable correction in Indian equities triggered by a break in the domestic savings bid. “The other way foreign investors are most likely to return to India in size is a sharp correction triggered by a sudden cessation in domestic mutual fund inflows,” Wood says. While he concedes this is “certainly possible in theory” given “lacklustre” mutual fund returns since the Nifty peak in early January and the MSCI India peak in late September 2024, he stresses there is, as yet, “a lack of evidence of any sudden sharp decline in flows into the Systematic Investment Plan (SIP) schemes.”
SIP contributions averaged Rs 30,500 crore (US$3.4 billion) per month in the three months to January, with an average ticket of just Rs 3,140 per account, underscoring the breadth and resilience of retail flows.
Domestic equity mutual funds recorded net inflows of $51 billion in 2025 and $4 billion in January 2026 alone, while National Pension System equity flows are already running at around $1.4 billion a month and are projected to rise significantly in coming years.
“All this suggests that the best story for the stock market remains the continuing evidence of inflows,” Wood writes, calling the mutual fund and associated wealth management industry “India’s most successful industry” which has so far “largely avoided the curse of passive investing.”
Against this backdrop, Wood characterises the foreign exodus less as a verdict on India’s fundamentals and more as a function of global positioning and the AI‑semiconductor cycle.
He also points to a “positive story in Indian equities” via a cyclical upturn, with Jefferies’ proprietary India Economic Indicator running at 6.1% year‑on‑year in January and bank loan growth accelerating to 13.6% year‑on‑year as of mid‑February, implying real credit growth of 10.8% given headline CPI inflation of 2.7%.
Earnings for the Jefferies India coverage universe accelerated to 18% year‑on‑year in 4QCY25, and the broker expects MSCI India earnings growth of 15% in the coming fiscal year, up from an estimated 10% in FY26.
In his note, he also highlighted that small and midcap companies reported are faring better as compared to many other emerging markets.
The latest earnings season was a good example of this is. The sales growth of the Nifty Microcap Index of 250 companies was 12% YoY and net profit growth of 24% YoY, he said.