Although domestic demand has been holding up following the recent GST rate reduction and income tax relief provided in the Budget, geopolitical developments have put pressure on equities markets.
A bubble in the value of AI stocks is another hotly debated topic. Businessline discussed the AI factor and other matters with Nilesh Shah, MD of Kotak Mahindra AMC and a member of the Prime Minister’s Economic Advisory Council. Modified Passages:
Without a significant foothold in AI and semi-conductor manufacturing, can India draw in FPI flow?
AI has received a lot of funding, and it will undoubtedly change the game. However, what is the potential return on this investment? Doubts are starting to surface. People think that investments in AI are not yielding enough returns. Since we are not involved in the AI field, we stand to gain from this potential anti-AI trade.
The second notion is that AI functions like a freeway. We have no play there as we have not constructed the freeway. I may operate as many buses as I can on those roads, and even if I have to pay tolls, I will be able to make more money from the passengers. Can we develop apps that employ other LLMs (Large Language Models) to provide customers with better, quicker, and more affordable solutions? Once again, if that occurs, India is a very excellent AI play from an application perspective, so we need to be a little fortunate in terms of either trading AI or providing AI applications.
Is India prepared to use enterprise AI?
Many Indian IT firms are working hard on enterprise AI. They are organizing data, utilizing data analytics, and protecting data. Naturally, this has to grow much more quickly, but Indian IT service providers are doing respectable job there. We will likely have the biggest AI user or knowledge base. Hopefully, we will be able to develop an app or leave our imprint in corporate AI.
Cheap oil shipments from Russia have greatly benefited India. What effect will US sanctions have on Russian oil?
Cheaper Russian oil may not always benefit us the most. China or the European Union have benefited more. Indeed, China has consistently evaded US sanctions against Iran and Myanmar. They receive far cheaper oil from Iran and one-third of their rare earths from Myanmar, but the United States does not single them out. This is geopolitics, all right. In geopolitics, you do not expect life to be fair. Fortunately, oil prices have dropped from $80 handle to $60 handle, and the supply of oil is still more than the demand. To maintain a balance between supply and demand, OPEC is reducing output. I hope the price of oil stays at $60 per barrel.
What are the government’s current challenges?
The seventh Pay Commission is causing financial strain. It will take effect in January of 2026. In 2027, the 8th Pay Commission will make its proposal. Will the budget for FY27 cover it? Will the fiscal promise made in terms of the debt to GDP ratio and deficit be maintained if this is carried out? The Finance Minister will need to give this some serious thought. Asset monetization and disposal are two conventional options. The markets are doing well, many PSU businesses are in demand, they are being re-rated, and resources may be increased.
Defreezing gold and silver that are languishing in lockers and using a parallel economy might be the second creative idea. Since the Covid era, gold holdings have increased thrice. India’s silver reserves are unknown, however they are increasing. Can we conceive of creative ways to make money off of these metals? One way to put gold to good use is to promote lending against it. According to gold-owned businesses I have encountered, some people will come pledge their family jewelry and launch a holiday company. They return the gold jewelry after paying back the debt at the end of the business season.
How certain are you that the present consumption boom will continue given the loss of high-paying jobs in IT and other sectors?
There are no new incremental positions in IT as there used to be, yet the workforce has not significantly decreased. Growing GCC (Global Capability Center) employment makes up for the decline in IT industry employment. The issue facing the IT industry is the stagnation of entry-level compensation increases. In my opinion, the compensation rise for entry-level positions over the past 20 years has only been 1.5%.
This indicates that you were actually earning less money 20 years ago than you were 20 years ago. American tariffs have a negative effect on industries that create more jobs, such textiles, gem and jewelry, aquaculture, and handicrafts. We must locate a different market for these goods.
What effect will the US Fed’s rate drop have on inflation?
The Fed is likely making a judgment as a result of US President Trump’s constant pressure. He is also proposing the next Fed chairwoman, most likely with a pledge to lower interest rates. In that sense, I believe the Fed’s independence is being undermined, and their choice to lower rates is motivated more by political pressure than by pure facts.
