India’s Market Rally Stalled by AI and Geopolitics: Expert Insights
A combination of artificial intelligence (AI) and global economics has stalled India’s progress amongst its emerging market peers, according to Ruchir Sharma, head of Rockefeller Capital Management’s international business, while speaking to NDTV’s Editor-In-Chief Rahul Kanwal.
India’s Equity Remains ‘Emerging’
India’s equity remains ’emerging’ versus other emerging markets, but the global AI wave and shifting geopolitics have complicated the outlook of India’s markets on the global stage, said Sharma. Indian stock market trends are being closely watched by investors.
The Shift in Narrative
‘The narrative has shifted a lot,’ Sharma said, contrasting phases in market sentiment. ‘A year ago at this time, India was the hottest emerging market and in the last year, India has massively outperformed other emerging markets. It has outperformed by 30% points in dollar terms.’ This shift in narrative has significant implications for investing in India.
Underperformance of Indian Markets
At the same time, he cautioned that recent months have been tougher. ‘We have never had a period where Indian emerging markets have underperformed other markets by this magnitude and this is because of a couple of issues,’ stated Sharma. The Indian economy is facing challenges due to the global AI wave and shifting geopolitics.
Reasons for Underperformance
Sharma listed out two reasons for the underperformance of Indian markets, attributing the first reason to AI trade as the dominant global driver which he feels has not obviously favoured India. ‘The big trade in the world in the last year has been the AI trade and India has been seen as a bit of a loser in this,’ he said.
Impact of AI on India
‘There is a feeling that AI is going to take over a lot of jobs. It’s going to make it much more difficult for countries to climb up the development ladder because so many jobs are going to be replaced by AI that could have been done by a lot of mid-level workers, whether it is BPO or other such industries,’ Sharma explained. This has significant implications for AI in India.
Geopolitics and Trade Tussle
Second, he pointed to geopolitics and the trade tussle between India and the United States of America. ‘The ongoing trade dispute with the US and the shifting tenor of US-China ties have altered India’s positioning,’ he stated.
India’s Positioning in Global Trade
‘At one point in time, India was seen to be the favoured ally of the US, which is the ‘so-called indispensable country that no nation can do without’, and now all of a sudden we find ourselves in a bit of a box,’ Sharma said. ‘The relations between the US and China seem to have improved from a very low point a year ago, and as far as India is concerned, it is no longer seen as the indispensable nation.’
Way Forward for India
These two shifts, he added, ‘have led to the Indian markets significantly underperforming the rest of the world,’ alongside ‘some slowdown in the Indian economy as well, possibly as a knock-on effect of the trade.’ However, Sharma resisted bleak forecasts. ‘My favourite line about India is that ‘this country consistently disappoints you to be a pessimist’,’ he quipped.
Need for Reform
Sharma wants policymakers to keep reforming, steadily and cumulatively. According to him, India’s structural appeal remains intact relative to its emerging market peers, but the speed and breadth of AI adoption and India’s dynamics with US will determine whether the market regains leadership. Investing in emerging markets requires a long-term perspective.
Conclusion
In conclusion, India’s market rally has been stalled by AI and geopolitics, but the country’s structural appeal remains intact. Investors should keep a close eye on Indian stock market trends and global economics to make informed investment decisions.