UBS stays underweight on India, cites high valuations and absence from AI theme

UBS continues to hold an ‘underweight’ stance on Indian equities, preferring markets like China, Taiwan, and Korea. According to Sunil Tirumalai, Global Emerging Markets Strategist at UBS, India’s valuations remain expensive relative to peers, growth has been moderate, and the country is yet to participate meaningfully in the global artificial intelligence (AI) investment trend.Speaking at the UBS India Summit, Tirumalai said the performance of large listed Indian companies has been steady but not exceptional. “The markets which are doing far superior are the tech markets like Taiwan, Korea, and China too,” he said. He added that India’s nominal gross domestic product (GDP) growth has slowed, with no clear catalyst to push it back to the 12–13% levels seen in previous years.

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Tirumalai highlighted valuation concerns as a major factor behind UBS’s cautious stance. “Historically, India used to trade at a 35–40% premium to other emerging markets. Now, even after a year of underperformance, it’s still at a 60% plus premium,” he said. From a global investor’s perspective, he added, India remains “conspicuously absent” from the AI theme that is driving growth in other markets.
He also pointed to India’s active primary market as one reason for the secondary market’s muted performance. The surge in initial public offerings (IPOs) has absorbed a larger portion of household investment flows. “Corporate demand for equity capital… that number is touching 25% [of household flows],” he said, compared with around 10% before the pandemic.Also Read | Arvind Sanger: AI boom not a bubble yet, India missing out on opportunity

Despite these concerns, Tirumalai ruled out a sharp decline in Indian stocks. UBS expects global equities to remain broadly positive, which should limit India’s downside. “It would be very difficult for the Indian market to correct by more than 5%,” he said, describing the current phase as a “time correction.”

Strong domestic participation continues to provide stability to Indian equities. “That’s a fantastic buffer for the market. It makes it very defensive and very protected against a big correction,” Tirumalai said. He added that UBS expects the Indian rupee to depreciate through the end of next year.

For the full interview, watch the accompanying video

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