AI valuations hit elevated levels, further rallies run bubble burst risk: Analysts

Mumbai: Artificial intelligence (AI) valuations have reached elevated levels and further rallies from here run the risk of a bubble burst, and this realisation is dawning on investors widely now, according to market watchers.

This may restrain sustained FII selling in India. If, along with this realisation, India’s earnings growth continues to improve, FIIs are likely to turn buyers. But this may take time, they noted.

“It is important to understand a significant feature of the FII activity this year. FIIs, particularly the hedge funds, are selling in India and buying in other markets which are driven by AI trade,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.

The US, China, South Korea and Taiwan are regarded as AI winners. This perception is hugely influencing the FPI action in the ongoing global rally driven by AI trade, he noted.

While October witnessed net FII buying of Rs 3,902 crore, November has started with FIIs turning sellers on every trading day, so far.

The net FII sell figure through exchanges in November up to 8th, stood at Rs 13,367 crore. This takes the total FII sell figure for 2025, so far, to a massive Rs 207,568 crore.

This largely explains the underperformance of India, relative to other major markets this year, said analysts.

Last week, markets ended lower, weighed down by persistent foreign fund outflows, mixed corporate earnings, and cautious global cues.

Renewed concerns over the valuation of AI-related stocks triggered profit-taking across major markets, further weighing on risk appetite.

“Globally, traders will monitor the performance of AI-related stocks and developments around global trade deals, both of which are expected to influence market sentiment,” said Ajit Mishra–SVP, Research, Religare Broking Ltd.

Markets are likely to remain volatile in the near term amid global uncertainties and a heavy flow of economic and earnings data. While short-term sentiment could stay cautious due to persistent FII outflows and uneven earnings, improving domestic macro indicators and steady corporate performance may provide underlying support, he maintained.
IANS