AI Valuations Reach Lofty Levels; Further Rallies Risk Bubble Burst, Say Analysts

Mumbai — Artificial intelligence (AI) valuations have surged to elevated levels, and any further rally from here could risk a potential bubble burst, according to market analysts. This growing awareness among investors may temper aggressive foreign institutional investor (FII) selling in India, they noted.

Experts said that if India’s corporate earnings growth continues to improve alongside this realisation, FIIs could gradually return as buyers—though that shift might take time.

“It’s important to understand a key aspect of FII behaviour this year. FIIs, especially hedge funds, have been selling in India while buying in markets driven by the AI trade,” explained Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The US, China, South Korea, and Taiwan are currently viewed as the main AI beneficiaries, which has heavily influenced global portfolio investment flows amid the AI-fueled market rally, he added.

In October, FIIs were net buyers in India with inflows of Rs 3,902 crore. However, the trend reversed sharply in November, with FIIs turning net sellers on every trading day so far.

Data shows that between November 1 and 8, net FII outflows through exchanges amounted to Rs 13,367 crore, bringing total foreign investor sales in 2025 to a massive Rs 2,07,568 crore.

Analysts said these sustained outflows largely explain India’s underperformance relative to other major global markets this year.

Last week, Indian equity indices ended lower, pressured by persistent foreign fund withdrawals, mixed corporate earnings, and uncertain global cues. Renewed concerns about the overvaluation of AI-related stocks triggered profit-booking across major markets, dampening overall risk appetite.

“Globally, traders will closely watch the performance of AI-linked stocks and updates on international trade agreements, both of which are expected to shape market sentiment,” said Ajit Mishra, SVP – Research, Religare Broking Ltd.

He added that markets are likely to remain volatile in the near term, given global uncertainties and the heavy flow of economic and earnings data. While short-term sentiment could stay cautious due to continued FII outflows and uneven earnings, strong domestic macroeconomic indicators and resilient corporate performance may provide a degree of underlying support.

With inputs from IANS