Daily Voice: Bigger worry isn’t just tariffs; it’s tsunami of AI on India IT services, says Nilesh Shah

Nilesh Shah is the Managing Director at Kotak Mahindra AMC

It's the tsunami of AI hitting India's IT services sector and not just tariffs that is the bigger worry for Indian markets, believes Nilesh Shah, Managing Director at Kotak Mahindra AMC. The secondary impact, he feels, is likely on jobs, consumption, and urban spending.

Beyond AI disruption and geopolitics, the biggest challenge for this range-bound market is the investor mindset: will investors adapt to moderate returns? After years of 15–20 percent CAGR expectations, lower returns could feel like a recession, he said in an interview with Moneycontrol.

According to him, potential triggers for the market include an earnings surprise on the upside, rate cuts if inflation cools, policy continuity after any elections, or a global risk-on rally if Trump–China trade deals emerge.

Nilesh Shah believes markets are like a long Bollywood saga—full of twists and turns—but the hero (fundamentals) eventually wins. He advises investors to stay invested smartly, avoid the noise, and focus on adaptability.

How do you interpret the recent Supreme Court verdict on tariffs, which constrained Trump’s ability to impose high tariffs, and his subsequent reaction by imposing 15% global tariffs?

The recent Supreme Court (SC) verdict on tariffs is like a blockbuster scene from a Bollywood masala film—Trump ghayal hai, isliye ghatak hai! The SC, in its 6-3 judgment on February 20, 2026, slammed the door on Trump’s use of IEEPA to slap massive global tariffs, declaring that the President cannot play tax collector without Congress’s nod.

But enter the hero’s comeback: Don ko samajhana mushkil hi nahi, namumkin bhi hai! Within hours, Trump roared back, invoking Section 122 of the 1974 Trade Act to impose a fresh global tariff—first teased at 10%, then hiked to 15%—for 150 days unless Congress extends it.

President Trump has many options to levy tariffs; this is just one arrow in his quiver. Keep watching for events—legal challenges, congressional debates, retaliatory moves from EU, China and others. Markets will move on every announcement, uncertainty remains elevated, however the impact will be limited and short term in nature.

Overall, is the situation positive for India, despite the ongoing uncertainties around tariffs?

For India, the situation is a partial relief. Our tariffs on exports to US come down marginally in relative terms, while others face higher US tariffs. marginally better positioning. But it’s temp, bhai! The real game is fluid; new levies could hit Indian exports. if escalations happen. Yet, India’s diversified trade, strong services surplus, and domestic consumption story provide a buffer. Not a full jackpot, but not a total washout either.

Overall, is it positive for India despite uncertainties? Yes, partial—breathing space, but don’t celebrate yet. The bigger worry isn’t just tariffs; it’s the tsunami of AI on India IT services, and the secondary hit on jobs, consumption, urban spending. India can still rake in earnings from global tech demand, but what about long term growth rate?

On one extreme AI disruption could mean loss of well-paying jobs, drop in consumption, weak Rupee, higher NPAs, Social unrest etc. on the other hand, if AI is mastered well, it can open as big an opportunity as today’s IT services Industry. Markets hate sustained uncertainty, but tariff volatility is one thing; structural AI disruption is the major factor to watch.

Do you believe that sustaining tariff-related uncertainty poses the bigger problem for markets and trade?

Bad news is already in prices—many stocks have adjusted. Invest where entrepreneurs take corrective action: companies pivoting to domestic markets, cost efficiencies, or new geographies. Avoid rigid exporters without agility.

Do you expect overall earnings growth in the coming quarters to improve significantly compared to previous quarters?

Yes, improvement is coming. December 2025 quarter took a one-time hit from labour code changes (higher costs, compliance). March 2026 quarter should see recovery—banking (lower deposit rates aiding NIMs), select exports-oriented (if tariffs stabilize), cement (infra push), telecom (tariff hikes, 5G rollout). From mid-single-digit to double-digit trajectory in coming quarters—optimistic, but grounded.

Looking ahead, what are the biggest challenges and potential triggers for a market that has been range-bound?

Biggest challenges for this range-bound market? Beyond AI disruption and geopolitics, the investor mindset: will they get used to moderate returns? After years of 15-20% CAGR dreams, lower returns could feel like recession. Triggers? Earnings surprise on upside, rate cuts if inflation cools, policy continuity post any elections, or global risk-on if Trump-China deals emerge.

Which sectors are likely to capture your attention over the year ahead?

Sectors catching my eye in the year ahead:

• Banking—deposit rates softening, margin expansion, credit growth steady.

• Consumer discretionary—govt putting money in consumers’ pockets via schemes, rural-urban revival.

• Cement—infra capex cycle, housing boom, consolidation benefits.

Markets are like a long Bollywood saga—twists, turns, but the hero (fundamentals) eventually wins. Stay invested smartly, avoid noise, focus on adaptability.