Daily Voice: AI bubble burst could hit global markets, help India later, says Marcellus Investment Managers’ Gubbi

Clearly, the biggest risk on the horizon is the deflation of the AI bubble which will likely impact global markets including Indian markets. However, such a bust whilst negative for the Indian market in the short term may actually be positive for India in the medium term as currently India is not seen as a big play on AI.

The Indian economy on the other hand is less exposed to global risks being a largely domestic driven economy. The bigger risk for the Indian economy is lack of job creation as a result of employers using AI more.

Do you sense that at least the first phase of the India-US trade deal will be finalized by the first half of December? Will President Trump reduce the additional 25% tariff imposed due to Russian oil?

I am not an expert on trade policy. So timing the trade deal is above my paygrade. However, the recent sanctions on Russian companies might result in reduction in Indian import of Russian oil and hence a reduction of the additional 25 percent tariff looks likely.

Do you see a possibility of a correction in Indian equity markets if the trade deal is not finalized in the current calendar year?

The Indian markets have been unfazed in the face of tariff disruption through this year as they have been supported by plenty of domestic liquidity. So I don’t see a delay in the trade deal posing downside risks but could cap near term upside as that might keep foreign investors away for longer.

Do you still believe AI is a great theme to invest in, or has it become overvalued?

There is no doubt that AI will be widely adopted eventually but the economics underpinning the current AI infrastructure boom are hard to reconcile suggesting risk of overvaluation in some pockets of the AI value chain making valuations look stretched.

However, there could be a relatively low risk way of getting exposed to the AI theme via ancillaries with part exposure to the AI spend lest the spending were to sustain.

Do you expect FIIs to return to India in the next calendar year?

India’s underperformance over the past year versus other global markets – developed or emerging has reduced the premium relative to a year ago. But that doesn’t guarantee a return of FIIs. Like I said, a collapse of the AI rally might somewhat make India a relative gainer. But it is hard to time the same.

What global themes should investors start looking at for their portfolios?

In our Global Compounders Portfolio, we find value in US and European small and mid-caps where there is good quality available at reasonable prices. Similarly, US industrials provide an attractive way to compounding without taking undue valuation risks.

Do you think the US Federal Reserve will pause for a longer period before making further rate cuts?

The Fed will be watching inflation numbers closely, as the much-awaited tariff driven inflation is likely to kick in once the pre tariff inventory build up is sold down. If that happens, I would expect a pause by the Fed.

Do you foresee any major impact of a US government shutdown on its economy?

This is not the first time we are seeing a US government shut down. Whilst short term impacts are inevitable it hasn’t had lasting impacts in the past.

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