The global surge in artificial intelligence investment has largely bypassed India, with the US capturing a dominant share of the market. According to a Stanford University report, private AI investments in the US reached $285.9 billion in 2025, dwarfing China’s $12.4 billion. This investment trend reflects a growing focus on AI-driven growth, yet India remains on the periphery, primarily using AI for efficiency and cost management rather than innovation.
Foreign portfolio investors have been withdrawing from India, with March 2026 seeing record equity outflows of $12.58 billion. This trend is part of a broader shift, with FPIs reducing their equity assets under custody from $930 billion in September 2024 to $660 billion by March 2026. In contrast, the US ETF market experienced significant inflows, with equity ETFs attracting $56.7 billion in March 2026 alone. US-based AI companies secured 79% of global AI funding in 2025, highlighting the disparity.
Rishabh Khandelwal of Sabiduria Capital points out that Indian companies are not appealing due to higher valuations compared to other emerging markets like Taiwan and South Korea, which offer more attractive AI-linked opportunities. The lack of AI-led value creation in Indian firms is evident, as they focus on productivity improvements rather than developing new AI-driven products and services.
Indian IT companies are lagging in the AI race, deploying AI mainly for productivity and cost optimization. This approach contrasts with US tech firms, which are leveraging AI to create new product categories and revenue streams. Investors are keen on companies that use AI to generate new value, and without clear signs of AI-led growth, Indian firms are seen more as efficiency stories rather than growth narratives.
Uddeshya Goel from Empirica notes that Indian IT firms remain service-led and slow to develop significant AI intellectual properties. The capital is shifting towards AI infrastructure and hardware ecosystems, with Indian firms prioritizing buybacks over aggressive AI investments. This cautious stance by global investors indicates a pause rather than an exit, as they await clearer signals of AI-driven growth from Indian companies.
Despite the current capital flow trends, India has potential in AI-adjacent sectors such as data centers and semiconductor manufacturing. Abhishek Srivastava of Kae Capital suggests that India’s strength lies in domain-specific applications, particularly in areas like healthcare diagnostics and multilingual AI. These sectors leverage India’s data diversity, providing a structural advantage.
For India to become a part of the global AI investment cycle, there must be a shift from AI-enabled services to AI-led businesses. This requires a transition towards owning products and intellectual property and focusing on revenue creation. Without these changes, India risks being sidelined in the AI-driven global economy. The immediate challenge is not competing directly with the US but rather demonstrating AI-led growth to attract investor capital.
