Dear Reader,
Please take a look at the links below under the sub-head ‘Stocks’. They show the stock recommendations by our Research Bureau this week. What’s most interesting is that almost all of them are analyses of IPOs -- It shows just how much supply is hitting our equity markets. From the point of view of corporates and promoters, this is great news. It indicates that funding for economic growth has shifted from the banks to the markets.
From the point of view of the secondary equity markets, though, the additional supply is not all that great. When market conditions are strong, companies flood the IPO space with increasingly optimistic valuations, historically serving as a reliable indicator of market peaks. A Jefferies report points out: “Flat markets for a year notwithstanding, Indian equity markets have enjoyed strong domestic inflows of US$6-8bn/month. The monthly investments (SIP) route has continued to build and additional flows via insurance, provident funds and AIFs are also large now. On the other hand, the equity supply has been equally large at US$8bn/month during May-Aug'25, as exit by PEs and Promoters account for ~60% of the equity supply.” These exits, of course, are being arranged, thanks to the generosity of Indian investors, as foreign portfolio investors continue their selling spree.
Sentiment among investors was hit this week by the Trump regime’s attack on H-1B visas, which, as our columnist Prosenjit Datta wrote, is “lose-lose in the short run”. While H-1B employees may be a small slice of the workforce, it’s a very valuable one. We wrote that our cautious stance on Indian IT services emanates from multiple headwinds facing the sector. A re-rating of the sector as a whole looks unlikely until there is a new technology cycle with meaningful earnings visibility. Little wonder then that IT stocks have corrected sharply — although the writing was always on the wall, or rather in the Project 25 document. And as our columnist pointed out, with more than 10 percent weight in the Nifty 50 Index, a correction in the IT sector affects the broad market as well.
The IT sector is also likely to be hurt by AI. A Jefferies note on Accenture’s results says, “Muted growth guidance despite pick-up in GenAI projects suggests that these projects are not driving an increase in IT services budgets.” Of course, the AI threat will affect industries across the board, and as my colleague Vatsala Kamat pointed out, AI's massive investment spree masks a growing unemployment crisis. Increasingly, questions are being raised about the sustainability of the huge AI investments, which has been a potent factor in US GDP growth. Deutsche Bank Research wrote with pardonable hype: “Simplifying it, perhaps Nvidia, which employed only 36,000 people at the last update earlier this year, holds the keys to all global macro in 2026!” And as this FT story, free to read for Moneycontrol Pro subscribers, points out in its analysis of the Nvidia-OpenAI deal, “If Monday’s deal seems performative, perhaps that’s the point. Both sides have something to gain from the impression that the AI race is stepping up a gear.”
There is little doubt that AI also presents an opportunity. We looked at WTO and Niti Aayog reports on AI to discuss how India could harness its AI potential to boost trade. Our columnist Chandu Nair wrote: “Hopefully, all these mega shocks to the system will force entrepreneurs and start-ups to radically re-imagine how they do business and turn this massive disruption into an opportunity for renewed growth, investment in R&D and product innovation.”
Given the all-pervasive and at present highly uncertain prognosis about who will be the winners and losers from AI, here’s how investors should place their bets on it.
Faced with all this disruption, the Indian government is focusing on boosting the domestic economy. The GST rate cuts that took effect this week aren't merely about tax relief — They represent a calculated bet that domestic consumption can shoulder the burden if global headwinds intensify. We wrote about what investors should be watching out for in the GST cuts. However, much depends on how far the tax cuts can move the needle, given that consumption is already at full throttle, or at least that’s what the GDP data imply.
One piece of good news is that Trump’s tariffs on the pharma sector could be positive for Indian generic drug companies. And this month’s State of the Economy report in the RBI Bulletin is positive that the domestic economy will overcome external headwinds. It says, “The stage is set for a sustained pick-up in consumption demand in H2 and potentially for a virtuous cycle of higher investments and stronger growth impulses, overcoming persistent global uncertainties.”
We’ll know next week whether the Monetary Policy Committee will add to the stimulus by lowering interest rates again, although this article says it’s likely to focus on liquidity. Balancing liquidity and the rupee’s level is getting tricky. And our columnist believes “What needs to be seen is if the RBI cuts rates aggressively and/or issues dovish guidance for future meetings ... Unless the coupon rate is cut significantly, say by 50 bps or forward guidance indicates a slew of rate cuts in future meetings, interest rate-sensitive stocks may see only calibrated upsides in the near term.”
The larger question is whether India can turn the disruption of old certainties into the foundation for new strengths. Success in this brave new world will lie in the ability to dance when the ground beneath keeps shifting.
Cheers,
Manas Chakravarty
In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:
Stocks
Pace Digitek IPO, TruAlt Bioenergy IPO, Jinkushal Industries IPO, Epack Prefab IPO, Jaro Institute IPO, Seshaasai Technologies IPO, Anand Rathi Share and Stock Brokers IPO, Solarworld IPO, Ganesh Consumer IPO, Atlanta Electricals IPO, HEG, Jain Resource Recycling IPO, Mazagon Dock, Weekly Tactical Pick: This housing finance company is set to gain from the falling rate environment
Financial Times
RIP to safe havens
Stablecoin issuer Circle examines ‘reversible’ transactions in departure for crypto
Defending defence is the hot new strategy in ESG investing
Markets
Brokerages turn bullish on Indian equities as earnings outlook brightens
SEBI's REIT reclassification opens door to $20 billion commercial real estate market
Have banking stocks finally found the bottom?
Banks staring at a valuation reset as slippages rise, margins shrink: Aequitas’ Siddhartha Bhaiya
AI in algo trading risks ‘shallow quants’, LTCM-style blowups, experts warn
Companies & sectors
NTPC, Agrochemical companies, Desi food joints are spicing up the realty market,
Economy & policy
India’s cities are reaching for the skies, but collapsing on the ground
States tripping up borrowing plans of private firms as yields harden
Reopening of PLI for ACs and LEDs to drive self-reliance
Bond strategy reset: Ditch ultra-long issuance
India's fertility rate falls below replacement level: Kerala shows the way forward
Decoding the August core sector data
How can states further energise the RE drive?
Geopolitics & Geoeconomics
US sanctions on Chabahar port are a gain for China
Others
Prashant Kishor's Jan Suraaj could be a game-changer in Bihar Assembly elections
Personal Finance: Don’t fall prey to misleading ‘finfluencer’ calculations
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