EXCLUSIVE | If AI trade cracks, can Indian markets outperform? ICICI Prudential's S Naren explains

ETNow.in hosted its highly anticipated India Investment Summit 2026 in Mumbai. The theme for ETNow.in's India Investment Summit 2026 is 'India's Fiscal Playbook: Budget and Market Outlook for 2026'. S Naren, Executive Director and Chief Investment Officer at ICICI Prudential Asset Management Company (AMC), suggested that India could emerge as a major beneficiary if the global AI investment frenzy faces a significant correction.

He explains if massive global investments are pouring into AI — but what if returns don’t match expectations? He explains whether an AI capex bubble could trigger a correction in global markets and whether India could emerge as a key beneficiary. From Nasdaq risks to India’s macro strength, IT services outlook, and investor positioning — here’s what the potential AI pivot could mean for Indian markets and long-term investors.

Naren described India as positioned as the "anti-AI trade" in a world pouring massive capital into AI infrastructure, particularly in Western markets. He pointed to the enormous CAPEX flowing into AI globally and questioned whether all of it would deliver adequate returns on investment.

"The AI story can't keep becoming the only story in the world," Naren said. "There will be bigger benefits for the AI users like the Indians." He added that while a pivot toward AI-using economies like India has not yet materialised, it may require a sharper correction in markets like the Nasdaq or a "DeepSeek 2.0"-style movement to trigger the shift.

Turning to the Union Budget 2026, Naren defended the controversial increase in Securities Transaction Tax (STT), which sparked an initial knee-jerk sell-off in equity markets (later offset by positive developments like the India-US trade deal). He called the STT hike a "welcome long-term step" aimed at shrinking the derivatives (F&O) market—where he observed individuals rarely make consistent money—and enlarging the healthier cash market that supports genuine investment and new company formation.

"It's a zero-sum game in derivatives," Naren remarked, drawing from his experience as a stockbroker in the 1990s and early 2000s. He hopes some derivative volumes migrate to cash markets, fostering better capital allocation. While acknowledging short-term volume impacts, he emphasised that excessive exuberance in capital markets isn't healthy long-term.

On the budget's overall impact, Naren downplayed expectations of dramatic announcements. With GST and other taxes managed outside the annual exercise and a stable taxation regime in place, budgets can no longer deliver the sweeping changes seen in the 1990s. "It is impossible for any government to create big changes in taxation every year," he said, describing the Budget as more of an explanation of the government's direction than a transformative event.

Naren also addressed the recent volatility in precious metals, particularly silver's sharp correction after a speculative rally. He likened silver to a "small-cap stock" without earnings, dividends, P/E, or discounted cash flow valuation—making it highly manipulable and unpredictable. "If people want speculative fun, they should do it," he cautioned, contrasting it with gold as a more stable "mega cap" backed by central bank ownership.