India remains a critical destination for emerging market investors, even as it faces a "reverse AI trade" that has impacted its MSCI Emerging Markets Index weightage to 12 per cent, according to a Jefferies Greed & Fear report.

"If India has been out of favour as the reverse AI trade, at least it has not been reduced to complete benchmark irrelevance for emerging market investors, which is the real risk now facing Asean markets," the report stated.

The report highlighted that Indian mid-cap stocks have seen a good rally, outperforming the broader market despite a period of significant foreign capital outflows.

"Meanwhile, amidst the focus on DRAM stocks it would be easy to miss that this quarter has seen a decent rally in Indian mid-cap stocks from the recent intraday low reached on 2 April," the report said.

While global investors focused on semiconductor-driven markets, the report mentioned that the Nifty MidCap 100 Index rose 19.2 per cent from its low on April 2 to reach a peak of 62,094.

The performance of the mid-cap segment sharply diverged from the blue-chip Nifty 50 Index, which gained 9.7 per cent from its April low but stayed 7.8 per cent below the peak it reached in early January.

The report highlighted that since the beginning of 2023, the MidCap index climbed 97 per cent, significantly higher than the 34 per cent gain seen in the Nifty Index.

This trend persisted despite "foreigners selling a net $21.1 billion of Indian equities year-to-date," a figure that already exceeded the record $18.8 billion in net selling recorded throughout last year.

"This mid-cap segment remains the most interesting part of the Indian market to GREED & fear, though the recent rally means the stocks are looking relatively expensive again," the report noted.

The report highlighted that domestic equity mutual fund inflows provided a crucial cushion against foreign selling. These inflows accelerated to ₹500 billion in March, marking the highest level in eight months.

Systematic Investment Plans (SIPs) accounted for ₹321 billion of that total. Additionally, the National Pension Scheme contributed approximately $1.7 billion per month into equities during the first quarter of 2026.

The shift in foreign interest is linked to changing weightings in the MSCI Emerging Markets Index. India's weighting dropped from 19.5 per cent to 11.5 per cent since the start of last year, while the weightings for Korea and Taiwan increased to 20.6 per cent and 25 per cent, respectively.

"Samsung and Hynix are forecast to earn profits totalling W452tn ($307 billion) this year, three times the total forecast profits of $102 billion for India's Nifty 50 universe," the report mentioned.

As a result of these benchmark shifts, adjustments are made to the Asia Pacific ex-Japan relative-return portfolio. The weighting for India is reduced by one percentage point to 12 per cent, while weights for Korea and Taiwan increased to 18 per cent and 21 per cent, respectively.

Published on May 9, 2026