More than 50% chance of a 10% market correction if AI rally continues, says Macquarie

Macquarie Capital’s Managing Director and Head of Equity India, Sandeep Bhatia, has warned that India’s stock market has a greater than 50% chance of experiencing a 10% correction if the current AI and semiconductor-driven rally continues. The risk is heightened by slowing inflows into domestic mutual funds and continued selling by foreign institutional investors (FIIs), which have shifted focus to markets like South Korea, Taiwan, and the US. Bhatia attributed the outflows to India’s limited direct exposure to the AI and semiconductor investment cycle. He noted that if the AI-led rally extends into September and October, the likelihood of a correction could increase significantly. While he anticipates near-term market volatility, Bhatia believes a correction could make Indian equities more attractive by lowering valuations for both foreign and domestic investors. Despite the cautious outlook, Macquarie remains optimistic about specific sectors. The firm sees opportunities in the energy supply chain tied to data center growth, including companies such as CG Power, NTPC, and Adani Energy. Infrastructure, consumption, and select financial stocks—including State Bank of India and HDFC Bank—are also highlighted as favorable areas. In the consumer space, Bhatia identified Titan, Nestle India, Indian Hotels, and Chalet Hotels as preferred picks. He emphasized that while domestic liquidity, supported by systematic investment plan (SIP) inflows, has bolstered markets, weakening liquidity could further strain valuations. The strategist’s analysis suggests a mixed but cautiously optimistic perspective on India’s market prospects amid global investor trends.