Borrowed Money, Overheated Chips, and the Trade That Could Reignite India
Indian markets have underperformed for two years while global capital chased the AI semiconductor boom in North Asia. History says such cycles end. The evidence that we are at or very near that inflection point has never been stronger.
T H E F U L L P I C T U R E – 7 T H I N G S E V E R Y I N V E S T O R M U S T K N O W
1. India’s underperformance was not about India, it was about capital mechanics
Between Jan 2024 and May 2026, the Nifty 50 delivered muted or negative returns while markets in South Korea (+63%), Taiwan (+42%), and the US surged. Many investors concluded something was wrong with India.
India was not sold because its economy weakened. India was sold to fund purchases elsewhere. Global Emerging Market fund managers wanting exposure to Taiwan Semiconductor, Samsung, and SK Hynix needed to raise cash, and India, being liquid, widely held, and trading at a premium to the EM index, was the most convenient ATM. Between September 2024 and November 2025, FPIs withdrew nearly
$28 billion, pushing foreign ownership to a 14-year low of 16.6%. India’s midcap companies, meanwhile, reported 1G% year-on-year PAT growth in Q4 FY25, nearly double large-cap growth. The earnings story was fine. The selling was mechanical, not fundamental.
2. The AI frenzy built a Dot-Com style concentration risk in two markets:
The AI semiconductor trade is real TSMC (Taiwan Semiconductor Manufacturing Company), Samsung, and SK Hynix do supply the physical hardware that makes AI run. But the price paid for that story has reached extreme levels. The Philadelphia Semiconductor Index recently traded at 53.5x price-to-earnings nearly double its 10-year historical average of 28.4x. This is precisely where the NASDAQ stood in late 1GGG, before a 78% decline over 30 months.
South Korea’s KOSPI surged over 63% year-to-date by June 2026. Samsung and SK Hynix together account for nearly 50% of the KOSPI; TSMC alone represents over 40% of Taiwan’s benchmark. On June 5, 2026, Broadcom’s AI chip guidance came in $1.2 billion below extreme expectations. The KOSPI triggered a circuit breaker. SK Hynix fell nearly 10% in a single session. The first crack in the AI trade has appeared.
3. Retail investors (in S. Korea s Taiwan) borrowed money to buy chip stocks: the classic late-bubble signal
Every speculative bubble in history shares one signature: ordinary people begin taking personal loans to buy the asset. In South Korea, outstanding margin debt reached a record ₩37.74 trillion (~₹2.3 lakh crore) as of June 2026 up 72.5% in a year, the fastest growth globally. A viral post showed a Korean civil servant who borrowed ₩1.7 billion via margin loans to bet on SK Hynix, declaring he would ‘risk complete collapse’ rather than miss the rally.
The smart money was doing the exact opposite: foreign institutional investors were net sellers of $26.6 billion worth of Samsung and SK Hynix during the same period. Like semiconductors, precious metals are now at historically stretched valuations. When mean reversion hits overextended assets, capital needs somewhere to go. India is there somewhere.
4. There is no major economy growing faster than India; yet global investors are dangerously underweight
India’s GDP is projected at 6.8% in FY2026, against 5.1% for China, 2.3% for the United States, and near-zero for Germany and Japan. No other G20 nation combines India’s growth rate with democratic institutions, rule of law, a young demographic, deep liquid capital markets, and a rapidly maturing manufacturing base.
HSBC noted explicitly that India’s sharp derating leaves ‘ample headroom’ for foreign investors to rebuild positions. Only a quarter of global funds hold an overweight view on India against a historical average where India commanded 6%+ of global EM flows. India’s share of global institutional flows collapsed to just 0.4% at its November 2024 peak. Mean reversion alone could drive enormous inflows when the semiconductor trade cools.
5. The reversal has already begun and it could be powerful and sustained
FIIs turned net buyers of Indian equities in February 2026 for the first time in 1.5 years. Jefferies’ Chris Wood, one of the most respected EM strategists globally, has formally identified India as a ‘reverse AI trade’: the natural destination for capital when the AI capex boom faces scrutiny over return on investment. With Korea’s margin debt at records and a circuit breaker already triggered, that scrutiny may have arrived or should be nearby.
FIIs have sold approximately $46 billion of Indian equities since 2024. Even a partial reversal represents trillions of rupees of buying pressure on Indian markets. Starting from a 15-year underweight, the re-entry trade could run for years, not months.
6. India’s domestic engine stayed strong throughout: SIPs, earnings, and the DII wall
While foreign capital fled, domestic investors displayed remarkable discipline. Monthly SIP inflows remained consistently above ₹20,000 crore through 2025–2026. DIIs were net buyers in virtually every month of the last two years. October 2024 alone saw ₹1,07,254 crore in DII purchases absorb ₹1,14,445 crore in FII sales, the largest single-month absorption in market history. The market held because India’s own investors held.
Corporate earnings have compounded quietly. BSE500 profits accelerated to 16.6% growth in Q2FY26. JPMorgan forecasts double-digit earnings growth for H2FY26 and FY27. PLI schemes have attracted $22 billion across 14 sectors. Tata Electronics’ semiconductor initiative at Dholera and Micron’s first India-made memory modules are building a manufacturing runway beneath the consumption story. The foundation has not cracked.
7. Markets never deliver returns in a straight line, but they always deliver.
The two charts on the following pages are the most important context any long-term investor can have. The first shows 16 years of Nifty 50 annual returns, with the opening index level for each year. The second shows 16 years of rupee movement against the US dollar with the opening exchange rate each year.
Together they make one unambiguous point: volatility is not risk, it is the price of admission for compounding that beats every other asset class over time. The investor who paused SIPs in 2011 (−24.6%) missed the 27.7% of 2012. The investor who stopped in 2015 (−4.1%) missed the 28.7% of 2017. The waiting when it feels most uncomfortable is almost always where the returns are made.
Nifty 50 — Calendar Year Returns Since 2010
14 out of 16 years were positive. Only 2011 (−24.6%) and 2015 (−4.1%) were negative. Every red year was followed by a strong recovery. Opening index level is marked inside each bar for easy reference.
USD/INR — Calendar Year Rupee Movement Since 2010
The rupee depreciated in 14 of the last 16 calendar years, at an average of 4.35% per year. This is not a crisis; it is a structural norm. Year’s opening exchange rate (₹ per $1) is marked inside each bar.
T H E B O T T O M L I N E :
AI is real, transformative, and likely to reshape industries for decades. But the current enthusiasm around AI bears similarities to the dot-com boom, when the NASDAQ-100 surged over 700% before falling 78%. Importantly, the internet itself was not a failure; the surviving companies went on to become some of the most valuable businesses in history. The lesson is clear: revolutionary technologies create immense value, but periods of excessive optimism can lead to painful corrections. The key is to separate long-term innovation from short-term speculation.
India’s macro is intact. Corporate earnings are compounding at double-digit rates. The market is the cheapest it has been relative to global peers in 15 years. The AI frenzy that pulled capital away is showing its first structural cracks: a circuit breaker in Korea, $24 billion in retail margin debt at record levels, and foreign institutions already selling into the rally they funded.
