India's Stock Market Status Under Threat as AI Shifts Focus to Taiwan and Korea

India spent years climbing the global equity rankings, reaching the fourth-largest stock market in early 2024 with a market cap of roughly $4.3 trillion. That position is now under direct threat from artificial intelligence-a sector driving rivals Taiwan and South Korea ahead.

Taiwan is home to TSMC, the chipmaker fabricating most advanced processors. South Korea boasts Samsung Electronics and SK Hynix, leaders in high-bandwidth memory essential for AI data centers. Foreign capital is flowing heavily into Taipei and Seoul as fund managers chase direct hardware exposure.

India’s tech strength lies in IT services-Infosys, TCS, and Wipro-specializing in outsourcing and cloud migration. But the Nifty IT index fell 21% in February 2024, the steepest drop since 2008, as markets fear AI could automate core parts of that model.

India holds about 16% of global AI talent and ranks first in AI skill penetration, but talent does not drive market capitalization the way chip fabrication does. Without a flagship hardware giant, India’s AI story remains diffuse-spread across services firms pivoting, private startups, and a growing but fragmented domestic market.

Index weight depends on market cap, which follows capital flows. With AI infrastructure as the dominant investment theme, Taiwanese and Korean blue chips capture the momentum, leaving India exposed. A drop from the top five could reduce passive fund inflows and ETF weightings, subtly but meaningfully impacting valuations in Mumbai.