At the same time, Jefferies reduced South Korea's allocation by one percentage point to 18% and Taiwan's by one percentage point to 24%, retaining underweight positions in both markets.

The changes come as AI-linked semiconductor stocks face sharp corrections and investors reassess the sustainability of massive technology infrastructure spending.

Why is Jefferies increasing India's allocation?

The portfolio adjustment increases India's relative importance in Jefferies' regional investment strategy.

India now carries a two-percentage-point overweight against its benchmark allocation, while South Korea is underweight by one percentage point and Taiwan by 2.8 percentage points.

However, the report does not explicitly attribute India's higher allocation to domestic earnings growth, valuations or economic fundamentals.

Instead, the adjustment comes against the backdrop of growing concerns about AI-related investments and their impact on technology-heavy markets.

Importantly, these are changes to Jefferies' recommended model portfolio, not actual foreign institutional investor inflows into Indian equities.

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AI stocks face sharp correction

Wood's report highlights a significant correction in Chinese semiconductor stocks, suggesting that investor enthusiasm for AI-related companies is weakening.

The China AI Semiconductor Top 10 Index surged 109% in dollar terms during the first half of 2026, reaching a peak in June.

However, the index has subsequently declined 50%, compared with a much smaller 1% fall in the broader MSCI China index.

Meanwhile, an index comprising memory-chip companies Micron, Samsung Electronics and SK Hynix has fallen approximately 40% from its late-June peak.

These developments are particularly relevant for South Korea and Taiwan because of their substantial exposure to semiconductor manufacturing and the global technology supply chain.

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Could AI spending peak in 2026?

Jefferies believes the unprecedented AI capital expenditure cycle could peak this year, although actual spending data has yet to confirm a slowdown.

Consensus estimates suggest that Microsoft, Amazon, Alphabet and Meta could collectively spend $1.04 trillion on capital expenditure in 2027.

However, Wood questions whether financial markets will continue supporting investments of this magnitude.

The report notes that AI-related capital expenditure contributed 1.39 percentage points, or 67%, of US real GDP growth of 2.1% in the four quarters to September 2026.

A sharp slowdown could therefore have broader implications for economic growth and global equity markets.

What does this mean for Indian investors?

Jefferies' decision signals a relative preference for India within its regional portfolio as AI-related risks intensify.

For Indian investors, the development highlights the importance of monitoring global technology exposure, particularly through international funds and ETFs.

However, a higher model allocation does not guarantee stronger Indian equity returns or increased foreign portfolio investment.

The key question is whether the correction in AI-heavy markets will encourage broader portfolio diversification towards markets such as India.

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