GIFT City Funds: AI Selloff Raises Risks for Indian Investors

A sharp selloff in US technology stocks has brought international equity investments through GIFT City into focus for Indian investors. Disappointing corporate earnings and growing concerns about the returns from massive Artificial Intelligence (AI) investments have triggered a correction in major US indices, raising questions about the risks facing investors with exposure to American equities.

Although Nasdaq 100 and S&P 500 mutual fund schemes available through GIFT City have delivered double-digit returns since their inception, recent market weakness highlights the volatility associated with overseas equity investments.

The correction is particularly relevant for investors who have built exposure to US technology companies through multiple funds. Overlapping holdings, currency movements and changing market valuations can all influence the returns they ultimately receive in rupee terms.

US Technology Selloff Triggers Sharp Market Decline

US markets ended sharply lower on Friday, October 30, as investors reacted to disappointing corporate results and concerns about the scale of spending on artificial intelligence infrastructure.

The Nasdaq Composite fell 2.86% to close at 25,437, marking its steepest single-day percentage decline since June 5. The S&P 500 dropped 1.82% to 7,580.07, while the Dow Jones Industrial Average declined 1.09% to 51,770.31.

The Nasdaq Composite ended the session 7.8% below its record closing high of October 6, reflecting the pressure on technology-focused shares.

The selloff followed growing investor concerns about whether the enormous investments being made by major technology companies will generate sufficient revenue and profits. Amazon, Alphabet, Microsoft and Meta are collectively expected to spend more than $700 billion on capital expenditure in 2026, with a substantial portion directed towards AI infrastructure, data centres and computing capacity.

While these investments are intended to support the development and expansion of AI services, investors are increasingly demanding evidence that spending will translate into sustainable business growth.

Why Big Tech’s AI Spending Has Become a Market Concern

Technology companies have committed substantial resources to building the infrastructure required to develop and operate advanced AI systems. This includes data centres, specialised chips, networking equipment and additional computing capacity.

However, the financial benefits of these investments may take time to materialise. Building infrastructure requires significant upfront expenditure, while the pace at which companies can convert AI demand into recurring revenue remains an important question for investors.

When earnings reports fail to satisfy expectations or companies provide uncertain outlooks, investors may reassess the valuations of businesses that have benefited from enthusiasm surrounding AI.

This has implications beyond individual technology stocks. Major technology companies account for a significant portion of the market capitalisation of leading US indices. A sustained decline in these shares can therefore affect both technology-focused benchmarks and broader market indices such as the S&P 500.

GIFT City Nasdaq 100 and S&P 500 Funds Show Double-Digit Returns

Despite the recent correction, several international mutual fund schemes available through GIFT City have delivered positive returns since their launch.

According to performance data as of the end of October, the Parag Parikh IFSC NASDAQ 100 Fund of Fund (FoF) recorded a return of 18.22% since inception. Its performance over shorter periods showed a more mixed picture, with gains of 5.61% over three months and 8.88% over six months, while its one-month return was negative at 1.52%.

The Parag Parikh IFSC S&P 500 FoF delivered a 14.75% return since inception. Its three-month and six-month returns stood at 3.52% and 7.58%, respectively, while its one-month return was positive at 0.66%.

The figures show that the funds have produced different results over shorter periods, even though both provide exposure to US equities. Their performance also reflects differences in the underlying indices they track.

Understanding the Difference Between Nasdaq Composite, Nasdaq 100 and S&P 500

Investors comparing the performance of these funds with US market indices should understand that the Nasdaq Composite and Nasdaq 100 are not the same benchmark.

The Nasdaq Composite includes thousands of companies listed on the Nasdaq exchange. The Nasdaq 100, by contrast, tracks 100 of the largest non-financial companies listed on the exchange.

The Parag Parikh IFSC NASDAQ 100 Fund of Fund follows the Nasdaq 100 rather than the broader Nasdaq Composite. Therefore, the 2.86% decline recorded by the Nasdaq Composite on October 30 should not be treated as the exact one-day performance of the fund’s underlying benchmark.

The S&P 500 tracks 500 leading US companies across multiple sectors. It offers broader market exposure than the Nasdaq 100, but its performance can still be influenced significantly by large technology businesses.

A prolonged correction in technology stocks could consequently affect both indices, although the degree of impact may differ depending on their respective constituents and weightings.

Other GIFT City Funds Also Report Losses

The latest performance figures suggest that volatility is not limited to funds investing in US technology companies. Several other schemes available through GIFT City have also recorded declines over different periods.

The DSP Global Equity Fund reported the steepest one-week decline among the nine live schemes, falling 1.99%. It was down 4.04% over six months and had declined 9.2% since inception.

The Edelweiss Greater China Equity Fund fell 7.35% over one month and 8.78% over six months. The HDFC International Emerging Markets Equity Fund recorded a 5.42% decline over one month and was down 5.88% since inception.

India-focused inbound funds have also faced pressure. The Sundaram India Mid Cap Fund declined 8.35% over three months, while the Tata India Dynamic Equity Fund was down 14.07% since inception.

These figures demonstrate that access to international or domestic equity strategies through GIFT City does not protect investors from market corrections. Returns depend on the underlying geography, asset allocation, portfolio holdings and investment strategy of each scheme.

GIFT City Investment Options Continue to Expand

The availability of international mutual fund schemes through GIFT City has created additional routes for investors seeking exposure to overseas markets.

Ankur Choudhary, CEO and co-founder of Belong, a GIFT City-based investment app, said that 14 retail mutual fund schemes had been authorised in GIFT City. Of these, nine were live, while two to three were preparing to launch new fund offers. The remaining schemes were expected to launch later in the year.

The expansion of investment options gives investors access to different markets and strategies. However, a larger selection of funds also makes it important to understand what each scheme holds and how its performance may respond to changing market conditions.

Investors should distinguish between the availability of an international fund and the diversification it actually provides. Two schemes may have different names but still hold many of the same large technology companies.

What Should Investors Holding Nasdaq 100 and S&P 500 Funds Consider?

The recent market correction highlights the importance of reviewing portfolio exposure rather than making decisions solely in response to short-term price movements.

1. Check Technology Stock Concentration

Investors should examine how much of their overall portfolio is exposed to technology companies. Holding several international equity funds does not necessarily provide meaningful diversification if their underlying portfolios contain similar large-cap technology stocks.

Checking the holdings and sector allocation of each scheme can help investors identify overlapping exposure and understand how a further decline in technology shares could affect their investments.

2. Match Investments With Financial Goals

Equity funds can experience significant short-term declines, even when their long-term prospects remain positive. Investors should assess whether their investment horizon is long enough to accommodate market volatility.

Money required for near-term expenses may not be suitable for exposure to volatile equity funds. Investors should consider their financial goals, risk tolerance and liquidity requirements before making changes to their allocations.

3. Account for USD-INR Currency Movements

Currency movements can influence the returns Indian investors receive from overseas investments. Changes in the value of the US dollar against the Indian rupee may increase or reduce the rupee value of gains and losses generated by the underlying assets.

Investors should therefore evaluate their returns in rupee terms rather than looking only at the performance of the US index or fund’s underlying investments.

4. Do Not Chase Historical Returns

The 18.22% return delivered by the Parag Parikh IFSC NASDAQ 100 Fund of Fund since inception and the 14.75% return recorded by its S&P 500 counterpart are historical figures. They do not guarantee similar performance in the future.

Investors should avoid selecting a scheme solely because it has delivered strong returns over a particular period. Portfolio composition, costs, investment objectives and risk exposure are also important considerations.

GIFT City Access Does Not Remove International Market Risks

GIFT City provides Indian investors with access to international investment opportunities, but it does not eliminate the risks associated with overseas markets.

Choudhary said that geographical diversification, portfolio suitability and investment discipline remain more important than pursuing recent market winners. His comments underline the need to assess international funds as part of an investor’s overall financial plan rather than treating them as isolated opportunities.

The latest AI-led selloff has brought the relationship between technology valuations, corporate investment and future earnings into sharper focus. For investors holding Nasdaq 100 and S&P 500 funds through GIFT City, the correction is a reminder to review concentration risks, understand currency exposure and maintain an investment strategy aligned with their financial goals.

Although the funds have delivered double-digit returns since inception, their future performance will depend on the underlying companies, broader market conditions and the ability of technology businesses to convert AI investment into sustainable earnings.