Shares in Indian suppliers that rode the data-centre boom are increasingly tracking US technology stocks, putting richly valued AI-linked businesses under pressure as investors question the pace of future spending.
The belief that American technology companies will keep pouring money into artificial intelligence at the same pace is coming under scrutiny, and that shift matters for Indian suppliers whose fortunes have been tied to the build-out of data centres and digital infrastructure. If capital spending eases, the share prices of companies with genuine demand in their order books could still come under pressure, as investors reassess how much of the AI boom is already reflected in valuations.
For small-cap investors in India, the past year has been rewarding in a market that has otherwise lacked broad momentum. According to Business Standard’s analysis of the Nifty Smallcap 250, only 97 constituents delivered positive returns over the period, underscoring how concentrated the gains have been. Among the strongest performers were Sterlite Technologies, whose stock has risen almost 526 per cent, and HFCL, which has gained 180 per cent. Aditya Infotech, Sansera Engineering, Acutaas Chemicals, Welspun Corp and MTAR Technologies have also posted sharp advances, although several other names in the segment have fared far less well.
Much of that strength has been linked to investment by US technology groups in artificial-intelligence infrastructure and data-centre capacity. One fund manager described India as being on the wrong side of the AI race but on the right side of the AI capital expenditure trade, a distinction that captures the country’s role as a supplier rather than a direct builder of frontier AI models. In practice, that has meant Indian firms benefiting not only from global spending on servers, networking and power systems, but also from data-centre expansion inside India itself.
The scale of some order books helps explain the enthusiasm. Sterlite Technologies has said its order book has grown 4.6-fold since March to about ₹35,274 crore, supported by $1.2 billion in deals with hyperscalers, the large cloud and technology groups that run extensive data-centre networks. HFCL has also said a significant share of its roughly ₹18,500 crore fibre and data-centre order book comes from hyperscalers. Company presentations from both groups point to artificial-intelligence data centres as an important source of future demand, particularly for fibre and connectivity products.
Yet the same dependence on a strong investment cycle can become a weakness when sentiment changes. Over the past month, six of seven stocks tied to data centres or related AI businesses have fallen, with Acutaas Chemicals the exception after expanding into semiconductor manufacturing. Business Standard’s analysis of MTAR Technologies, Sterlite Technologies and HFCL suggests that these shares have become increasingly linked to the Nasdaq Composite, rather than to India’s own small-cap index. Through the July to September quarter, their overnight trading patterns moved more closely with the US technology benchmark, while their connection to the domestic small-cap market weakened.
That growing sensitivity has coincided with a broader pullback in US technology shares. Alphabet, Bloom Energy and Meta have all fallen sharply over the past month, while the Philadelphia Semiconductor Index and the Nasdaq Composite have also declined. Against that backdrop, analysts are becoming more careful about the outlook for Indian small-cap names that benefited from the AI theme. Mutual fund ownership has eased over the past year in some of the more heavily traded stocks, including HFCL, Sansera Engineering, Welspun Corp and Acutaas Chemicals, although holdings have increased in others such as Sterlite Technologies, Cupid, Aditya Infotech, MTAR Technologies and Ather Energy.
The caution reflects a larger valuation test across the segment. Amit Khurana, group chief executive officer and head of institutional equities at Dolat Capital, told Business Standard that small caps have performed strongly this year, helped by their growth profile and the emergence of new businesses, but that several names have already seen meaningful corrections in recent weeks. He said raw material inflation remains a concern and warned that if cost pressures persist, valuations could be reset further in FY28. Vikas Gupta, chief executive of OmniScience Capital, said some of the stocks that have surged are plainly expensive, while others have yet to prove durable profitability. Kotak Institutional Equities said in an October 11 research note that the recent outperformance of small and mid-cap stocks has been driven largely by earnings upgrades, but warned that further gains will depend on companies meeting the expectations already embedded in their prices.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
