More than 50% chance of a 10% market correction if AI rally continues, says Macquarie

India’s stock market faces a higher risk of correction in the coming months as global investors continue to favor artificial intelligence (AI) and semiconductor-related opportunities in the US and North Asia, according to Sandeep Bhatia, Managing Director and Head of Equity India at Macquarie Capital.Bhatia said there is more than a 50% chance of a market correction if domestic mutual fund (MF) inflows slow while foreign institutional investors (FIIs) continue to sell Indian equities.

Bhatia noted that India is currently not viewed as a direct beneficiary of the AI and semiconductor investment cycle, which has led to capital moving towards markets such as South Korea, Taiwan and the US. “As long as these remain the investor focus, India will continue to see FII outflows,” he said. He added that if the AI-led rally persists into September and October, there is more than a fair chance of a 10% plus correction in India.
The strategist also warned that domestic liquidity, which has helped support markets through systematic investment plan (SIP) inflows, could weaken. While he expects market volatility in the near term, he argues that a correction could ultimately make Indian equities more attractive to both foreign and domestic investors by bringing valuations lower.Despite his cautious market outlook, Bhatia remains constructive on several sectors. He said Macquarie likes the energy supply chain linked to data center growth, including companies such as CG Power, NTPC and Adani Energy.

He also sees opportunities in infrastructure, consumption and select financial stocks, including State Bank of India and HDFC Bank.

In the consumer space, he highlighted Titan, Nestle India, Indian Hotels and Chalet Hotels as preferred picks.

For the full interview, watch the accompanying video

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