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India could emerge as a beneficiary if the global frenzy over artificial intelligence stocks cools, RBI Governor Sanjay Malhotra said. A sharp correction in AI-linked valuations across developed markets could unsettle investors and trigger volatility, but it may also encourage international capital to look for opportunities in markets such as India. RBI Governor highlighted that while Indian share markets have adjusted downward from recent highs, the pullback has remained controlled and smooth. “The AI investment cycle has been a major support for global financial markets, with strong earnings driving significant gains in AI-related equity valuations. However, as the investment cycle matures, any slowdown in AI investment or earnings could trigger a sharp repricing of financial assets, especially in the AI value chain. High risk appetite has spurred an increase in leverage which, along with declining free cash flows among major AI firms, could further amplify market corrections and financial market volatility.,” Malhotra said at the Kautilya Economic Conclave in New Delhi on Saturday, 3 October. AI has helped drive stock markets higher around the world, but Malhotra warned that the rapid adoption of the technology is also creating new risks for the global financial system. He listed stretched AI valuations alongside high public debt, growing leverage in shadow banking, the expansion of private credit and cyber risks as five key areas of concern. However, Malhotra said none of these risks currently poses an immediate threat of a major financial crisis. For India, the global uncertainty comes against a relatively strong backdrop, with healthy macroeconomic indicators and solid balance sheets across banks and non-bank financial companies. “As for corrections in AI-related valuations, if they were to happen in advanced countries... it may have a positive impact in terms of capital inflows,” the RBI Governor said. Despite exposure to global shocks via energy prices, international monetary policies, and capital movements, the domestic market displays strong resilience. Malhotra pointed out that disparate cybersecurity defenses worldwide mean a breach in one region can trigger widespread spillover effects, suggesting the next financial disruption may not start within traditional banking. Consequently, policymakers must trace technological dependencies and cross-border contagion paths while avoiding over-regulation that stifles innovation, ensuring financial networks can absorb stress without harming broader economic growth. “It is not that I see any imminent signs of stress,” Malhotra said. “But we need to remind ourselves that we need to remain alert to these risks.” “Strong macroeconomic fundamentals and the resilience of the financial system provide confidence in our ability to withstand these lingering shocks,” Malhotra said. “With the development of sophisticated AI tools... the most immediate concern is regarding cyber risk,” he added. Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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