Extreme turbulence in global AI trading sent South Korea’s benchmark KOSPI index on a rollercoaster ride, falling 18% from its all-time high to test bear market levels before shrugging off a technical decline today amid a strong 5% rally. The wild swings have caused a sharp divergence in emerging market stocks, while India’s Nifty has risen 3% over the past month.
Foreign portfolio investors (FPIs) have moved about Rs 2.6 lakh crore out of India in 2026, with the lion’s share of this capital going towards the global semiconductor AI buildout through Samsung and SK Hynix in Korea and TSMC in Taiwan. Now, with the tech trade under severe pressure, the question is whether Korea’s pain will be a structural cure for the revival of India’s underowned bulls.
But market experts caution against viewing the sudden fall in South Korean shares as an automatic bull run. The index’s vulnerability is directly related to the extreme concentration and historical levels of retail leverage.
Monarch CEO Gaurav Bhandari is skeptical that Korea’s fall makes it a good deal. “The argument that Korean stocks became ‘cheap’ after the crash is misleading,” he said. “A market that falls 18% after rising 200% is not cheap, it is cheaper than its peak. This is a completely different matter.”
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The real story, he says, is how narrow the rally was to begin with. The Kospi’s rise was driven almost entirely by two stocks – Samsung and SK Hynix – which together account for 52% of the index. Retail margin debt rose to a record 37.74 trillion won.
As the AI semiconductor trade took off, this concentration turned into a liability. The market dropped so much that circuit breakers tripped. “This is not an indication of the market value of the offering,” Bhandari said. “It’s a sign of focus, leverage and fragility.” Instead, it points to India’s broader revenue base. The Nifty 500 index posted earnings growth of 15.6% in FY26, spread across banking, consumption, infrastructure, information technology and pharmaceuticals, with no sector dominating as much as semiconductors dominate the Korea index. “India’s earnings may not be as dramatic in any one year,” he said, “but they are much more resilient.”
Tanvi Kanchan, associate director at Anand Rathi Share & Stock Brokers, rejects the idea that money flows into India automatically. Context, she argues, is everything.
Even though the KOSPI is in a bear market, it remains one of the fastest-performing major indexes in the world this year.
What looks like an outcome in her mind is actually housekeeping in the portfolio. As Korean stocks have risen, their weighting in global and emerging market indices has increased sharply, forcing many active fund managers to trim positions just to stay within risk. This is a rebalancing of about $62 billion as of the end of May, rather than a direct exit, she said.
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Even after the rally, valuations have not risen as much as the price chart suggests. The Kospi trades at 7×12-month forward earnings, the lowest since the global financial crisis, as earnings estimates were sharply revised higher. Consensus currently expects EPS growth to triple in 2026.
“The Korea adjustment makes India relatively more attractive from a risk reward perspective, but it will not mechanically reroute flows until AI semiconductor trade peaks or stabilizes and India’s own earnings give global distribution entities a concrete reason to return,” Kanchan said.
This “specific reason” has been missing so far and the scale of India’s losses this year clearly demonstrates this. According to Kanchan, the total foreign investment outflow from India in 2026 will be approximately ₹1.92 crore. The lion’s share of this capital has instead flowed to Samsung and SK Hynix in Korea and TSMC in Taiwan, three companies at the center of the global development of semiconductor artificial intelligence.
But she sees that the seeds of a reversal are already there. Once the AI capex supercycle peaks and markets begin to question whether all that infrastructure spending is actually turning into revenue, she expects capital to shift to markets with strong domestic demand, low correlation to global technology cycles, and a credible multi-year growth story. India, she says, offers a combination that few emerging market countries can match.
She notes two specific triggers to watch for. First: the peak of the global semiconductor cycle. “The moment SK Hynix and Samsung begin to play it safe, the crowded AI trade will look for outlets, and India is likely to become the main focus,” she said.
Secondly, a reset in the value of Indian shares, which has already partially justified itself. The Nifty 50 index is down about 10% year-to-date, and India is now one of the most undervalued assets in global emerging markets portfolios, with a benchmark weight of just 15.25% in the MSCI Emerging Markets Index.
“Lightweight external positioning is historically a prerequisite for a strong comeback when the macroeconomic backdrop changes,” Kanchan said. On this basis, she believes India is well positioned to be the biggest beneficiary of the post-AI trade rotation with domestic growth, SIP-led market stability, a credible reform record and historically weak external positioning.
(Disclaimer: The recommendations, suggestions, views and opinions expressed by experts are their own. They do not reflect the views of The Economic Times)