AI-Linked Stocks Shine Amid Market Slump

A group of Indian companies linked indirectly to the global artificial intelligence (AI) boom has delivered strong stock-market gains in 2026, even as the broader domestic equity market struggles. The rally highlights investor interest in businesses supplying the physical infrastructure needed to support AI computing, including optical fibre, telecommunications equipment, power systems and data centres.

India's benchmark Nifty 50 index has fallen 13% so far in 2026, putting it on course for its weakest annual performance since 2011, according to Reuters. By contrast, the MSCI emerging markets index has gained more than 18% during the same period.

Sterlite Technologies has emerged as the Nifty 500's strongest performer, with its shares rising 804% in 2026. Other major gainers include HFCL, MTAR Technologies, Syrma SGS and TD Power Systems, whose shares have advanced between 123% and 287% this year.

These companies provide components and services that support AI infrastructure rather than developing the advanced AI chips or models driving the technology boom. Their products include optical fibre cables, telecom equipment, fuel-cell units for data centres, electronics and power-generation systems.

India's limited number of listed companies producing advanced semiconductors has encouraged investors to seek indirect exposure to the AI investment cycle. Market participants describe these businesses as 'picks and shovels' suppliers because their products help build the infrastructure required to operate AI systems.

The expansion of data centres is a key driver. Real estate services firm JLL estimates that India's data-centre capacity could rise from 1.6 gigawatts in mid-2026 to 6 gigawatts by 2029. Global hyperscale technology companies are committing more than $50 billion to build 1.4 gigawatts of capacity in India by that time.

Indian suppliers are also securing sizeable contracts. HFCL won a five-year contract worth up to $1.1 billion from a global hyperscaler in March, while Sterlite Technologies signed supply agreements that could exceed $2 billion combined this year. Black Box secured a $131 million data-centre order from a US-based hyperscaler.

Investor participation in the rally has increased. Foreign investors raised their combined stake in the top 10 AI-linked Nifty 500 gainers to 13.6% at the end of the June quarter, compared with 10.3% a year earlier. Mutual funds also increased their holdings, with their stake rising to 11.8% from 11.5%.

The rally has unfolded despite record foreign selling across Indian equities. Foreign investors have sold a net $32.52 billion of Indian shares in 2026, with market valuations and India's relatively limited direct exposure to advanced AI chip manufacturing among the concerns cited.

Analysts have cautioned that sharp share-price increases have raised valuation risks. If AI-related capital spending slows or projected growth fails to materialise, companies whose prices already reflect ambitious future earnings could face significant corrections. The sustainability of the rally will depend on actual demand, order execution and the pace of data-centre investment.