Asian Stocks Extend Selloff On AI Valuation Fears, Middle East Tensions; Indian Markets Seen Opening Weak

Mumbai, July 29: Indian equity benchmarks are likely to open lower on Wednesday, tracking a fresh selloff across Asian markets as concerns over stretched artificial intelligence valuations, rising competition and heavy spending on AI infrastructure rattled investors ahead of key technology earnings and the Federal Reserve’s policy decision. 

Renewed attacks in the Middle East also pushed oil prices higher, adding to concerns over depleting supplies, inflation and global interest rates. The combination of a technology-led risk-off move and rising crude prices could weigh on sentiment towards Indian equities, with investors likely to remain cautious at the start of trade. 

Asian Markets Extend Brutal Selloff 

Asian stocks slid on Wednesday, extending a sharp selloff that has intensified concerns over the sustainability of the AI-driven rally. 

The MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%, after plunging 3.6% on Tuesday, and was on track for a monthly decline of around 8%. Japan’s Nikkei dropped 1% and was headed for a more than 10% decline in July. 

South Korea’s KOSPI fell around 5%, reversing earlier gains after sinking more than 10% to a three-month low in the previous session. The sharp decline came despite strong earnings from chipmaker SK Hynix, highlighting the extent of investor anxiety around technology valuations and expectations for the AI sector. 

Shares of SK Hynix fell 9% even after the company reported a more than sixfold increase in quarterly operating profit, as the results failed to meet lofty market expectations. 

The weakness in Asian technology stocks could weigh on Indian shares at the open. 

AI Trade Faces Crucial Test From Big Tech Earnings 

Asian chipmakers have been at the centre of this year’s AI-driven rally and the recent concerns over its staying power, triggering sharp swings across global equity markets. 

Investors are now awaiting earnings from Microsoft and Meta later on Wednesday for fresh clues on the strength of the AI investment cycle and whether the enormous capital expenditure by technology companies can generate adequate returns. 

The results come after Alphabet and Tesla unsettled investors last week with concerns around cash flows, adding to questions over whether the market’s expectations for AI-related spending and growth have become too optimistic. 

With the Federal Reserve’s policy meeting taking place between major U.S. technology earnings, investors appear to be reducing risk exposure ahead of what could be a critical test for both AI spending expectations and global market liquidity. 

Oil Prices Jump As Middle East Conflict Escalates 

The risk-off mood was compounded by a sharp rise in oil prices after fresh attacks in the Middle East ended a period of relative calm in the U.S.-Iran conflict. 

Investors are increasingly concerned about the impact of declining supplies on crude prices and the potential implications for global inflation and interest rates. 

For India, higher oil prices are a significant negative factor as the country relies heavily on imports to meet its crude requirements. A sustained rise in crude could put pressure on the rupee, widen the import bill and raise concerns over inflation, while also weighing on the profitability of oil-sensitive sectors. 

The combination of higher crude prices and weakness in global equities could therefore create a challenging backdrop for Indian markets. 

U.S. Nasdaq futures were volatile during Asian trading hours, down 0.3%, while Euro Stoxx 50 futures were also down by the same margin. 

Hong Kong’s Hang Seng index rose 1.5%, while China’s blue-chip CSI300 index was broadly flat, showing some divergence within the wider Asian market. 

Indian Markets Seen Opening Weak, Volatile 

Against this backdrop, Indian equity benchmarks are likely to open lower on Wednesday, with global technology weakness, rising crude prices and geopolitical uncertainty weighing on investor sentiment. 

The opening could remain volatile as investors assess the extent of the Asian selloff and monitor developments in the Middle East. The Federal Reserve’s policy decision later in the day will be another major trigger, with concerns over the possibility of a rate hike adding to uncertainty. 

The weakness in Asian chip stocks and broader technology shares could keep Indian stocks under pressure, while higher crude prices may weigh on oil-importing sectors and the broader macroeconomic outlook. 

Overall, Indian markets are likely to see a weak and volatile start, with investors reducing risk ahead of the Fed decision and major U.S. technology earnings. While gains in Hong Kong could provide some cushion, the broader global backdrop remains fragile, with the AI valuation debate, rising oil prices and renewed Middle East tensions likely to keep investors on edge. 

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