Why South Korea's AI Selloff Could Shift Global Investor Focus Towards India

South Korea’s benchmark KOSPI index has seen extreme volatility as the global artificial intelligence (AI) trade came under pressure. The index fell nearly 18% from its record high, briefly entering bear market territory before rebounding 5% in a single session. The sharp swings have created a divide across emerging markets, while India’s Nifty has gained around 3% over the past month despite sustained foreign selling.

Foreign Portfolio Investors (FPIs) have withdrawn about ₹2.6 lakh crore from Indian equities in 2026, with much of that capital flowing into AI-focused semiconductor giants such as Samsung, SK Hynix, and Taiwan Semiconductor Manufacturing Co. (TSMC). As the AI rally loses momentum, investors are now watching whether some of those global flows could return to India.

Is Korea's Correction A Buying Opportunity?

The South Korea AI selloff has sparked fresh debate over whether Korean equities have become attractive after the recent correction. But several market participants say the decline needs to be viewed alongside the extraordinary rally that came before it.

The KOSPI had climbed about 200% before giving up nearly a fifth of its value. Much of that rally was driven by Samsung and SK Hynix, which together account for more than half of the benchmark index. Retail investors had also pushed margin debt to a record 37.74 trillion won, leaving the market more exposed when the AI semiconductor trade began to unwind.

That combination of heavy stock concentration and leveraged retail positioning turned the KOSPI market correction into a sharp selloff, with trading curbs being triggered during the decline.

India, by contrast, has seen earnings growth come from a wider mix of sectors. The Nifty 500 posted earnings growth of 15.6% in FY26, with banking, consumption, infrastructure, information technology, and pharmaceuticals all contributing, rather than one theme dominating the market.

What Could Bring FPI Inflows To India?

Analysts say the recent correction in South Korea does not guarantee FPI inflows to India.

They note that despite the selloff, the KOSPI remains among the world's better-performing major indices this year. At around seven times 12-month forward earnings, Korean equities are also trading at historically low valuations after earnings expectations were revised higher.

However, many believe India could become more attractive once the AI semiconductor investment cycle begins to slow and investors rotate towards markets backed by domestic demand and diversified earnings.

India is still sitting at one of its lowest weightings in global emerging market portfolios after heavy foreign selling this year. That leaves room for overseas investors to raise exposure if the global technology trade cools and India's earnings continue to hold up. Any shift, though, is expected to depend on whether the AI-driven semiconductor rally begins to lose steam rather than happening automatically.

The risks in South Korea have also been amplified by retail trading activity. Investors have poured money into leveraged exchange-traded funds linked to Samsung and SK Hynix, seeking to magnify gains from the AI rally. The two chipmakers and the leveraged ETFs tracking them now account for more than 70% of trading value in the local market. Because these funds buy more as prices rise and sell more when they fall, they can amplify market swings during periods of heightened volatility.

Also Read - SBI Funds Management Raises ₹1,655 Crore Ahead Of IPO