Indian equities have rebounded sharply, making them the best-performing major global market so far this quarter.
The country's lack of homegrown AI leaders has drawn in capital seeking shelter from the worldwide selloff in technology shares.
India has long lagged in the AI race, and its IT services sector even faces disruption risk from the technology.
Yet global investors are now turning to Indian assets as a hedge against steep declines in other tech-heavy markets, and India is benefiting as a result.
The Nifty 50 index, which tracks India's leading blue chips, has climbed 11.6% since early October, trimming its year-to-date loss to 3.4%.
Part of the rally's fuel has come from foreign money exiting AI-related positions.
Last week, when the Nasdaq 100 posted one of its largest single-day drops, foreign investors net bought more than US$1.7 billion of Indian stocks in a single day.
That was the biggest one-day net purchase by foreign investors since August 2024 and pushed their cumulative buying for the month to nearly US$6 billion.
"Some of the money flowing out of AI stocks has gone to India," said Sajal Gupta, executive director at Mumbai wealth manager Nuvama, adding that "crude oil is a core variable for the Indian market."
Signals from Trump about talks with Iran sent oil prices lower, reversing the Indian market's slump.
The Indian rupee strengthened to a six-month high against the dollar, making it the strongest Asian currency this quarter.
India is a major energy importer and relies heavily on Middle Eastern oil and gas.
Last year, Indian stocks underperformed a broad emerging-market index by the widest margin in three decades, and with the Iran conflict dragging on, the market stayed subdued for most of this year.
Foreign investors have been net sellers of Indian stocks overall this year, offloading US$28 billion worth in the first half of 2026.
India's central bank began raising interest rates this year to curb inflation, which has approached the 6% tolerance ceiling.
To prevent a faster depreciation of the rupee, the central bank burned through tens of billions of dollars of foreign exchange reserves to defend the currency.
"The biggest market concern is that high oil prices will trap India in a vicious cycle of rising inflation and forced rate hikes, squeezing domestic consumption," said Abhay Agarwal, founder and fund manager at Mumbai asset manager Piper Serica, adding that "international investors do not see India as a tech exporter or a tech power."
Previously, India's elevated valuations also deterred investors, who shifted money to other Asian markets with greater AI exposure, such as South Korea, home to Samsung and SK Hynix.
Last week's weakness in AI shares was triggered by worries that newly elected Democratic lawmakers in the United States could curb the expansion of AI infrastructure and that tech companies' massive AI spending may fail to deliver the expected returns, prompting investors to reassess the value of Indian equities.
Analysts Devin Mistry and Anshul Agarwal at Mumbai's Motilal Oswal Financial Services wrote in a Wednesday research note that India's appeal lies in solid macroeconomic fundamentals, strong corporate earnings and ample domestic liquidity.
Data from Kotak Institutional Securities this month showed that Nifty 50 constituents' net profit rose 19% year-on-year in the latest quarter.
At the same time, India's economy is growing at an annualized pace of about 7%, the fastest among major economies.
"The growth momentum is positive, and more companies are beating earnings expectations than missing them," said Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, adding that India has become an asset to hedge the AI trade and that "investors need diversified allocations."
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