Indian equities are taking a hit as patchy profits, foreign fund outflows, and minimal exposure to AI weigh on valuations. Bond yields have been gaining ground relative to Nifty dividend yields, creating a less attractive risk-reward setup for stock investors versus fixed-income alternatives.

Foreign investors are trimming positions amid inconsistent earnings across Indian sectors. Weak profit growth has eroded confidence, pushing some capital out of equities. This outflow pressure compounds the stock market's struggles and narrows the case for holding Indian assets when bond markets offer steadier returns.

The lack of AI-driven growth compounds these problems. Indian companies lag behind global tech peers in artificial intelligence adoption, missing the rally that's lifted valuations elsewhere. As bond yields outpace equity returns, the yield spread shrinks, and capital continues shifting away from stocks toward fixed income.