India's tech sector to stay resilient amidst global market froth: Arnab Das

"So, the market is repricing a bit on those expectations. Plus, I think there was a kind of dynamic at work where if we are going to have a more resilient US economy, perhaps depending a little bit on or maybe even substantially on what happens in the forthcoming presidential election, we might have somewhat more reflationary, inflationary, somewhat lower growth kinds of policies coming through," says Arnab Das, Invesco.

Why have we seen the kind of cracks on Wall Street as we did on Wednesday, the Nasdaq cracking as much as it did? Is it only about the outlook on AI or does it cut deeper?
Arnab Das: Look, I think it is a bunch of different things coming together. The economy, notwithstanding the 2.8% number for Q2, does appear to be slowing down. On top of that, you have had these, as you have discussed, these earnings misses from some of the Magnificent 7 and of course, next week we have a whole series of further earnings releases from other companies in the Mag 7 and elsewhere.

So, the market is repricing a bit on those expectations. Plus, I think there was a kind of dynamic at work where if we are going to have a more resilient US economy, perhaps depending a little bit on or maybe even substantially on what happens in the forthcoming presidential election, we might have somewhat more reflationary, inflationary, somewhat lower growth kinds of policies coming through.


For example, if President Trump wins, we might have continued loose fiscal policy. We might have restrictions on immigration, even removals from the labour market which could push up the labour market, the jobs and wages component of inflation and thereby constrain how much the Fed can ease.

So, in that scenario, you might get less easing, less of a benefit from long duration, whether it is in bonds, we have seen a bit of a steepening trade, partly rolled back but still there.

In the bond market, we might get less lift from monetary policy for long dated growth and technology stocks, at the same time that many of those stocks may be under some top line earnings pressure, revenue pressure. So, both things are at work, the Fed, the corporate performance, and the kind of political economy and policy implications of what is going on in the campaign.

When you talk about the larger IT sector, the question also boils down to what is happening in India. With some of the earnings from our tech pack, which look very promising, I do not know how much you have been following some of the tech results back home in India, which show absolute promise for the future and US is a big market over there. So, when you look at this AI froth business that we are talking about which has a bearing on how Wall Street has behaved on Wednesday at least, but the outlook how does that actually play out for the Indian tech sector in your opinion?
Arnab Das: India will continue to do very well at a macro level. It continues to do well at a market level. The main challenge could be that as some of the froth that was just discussed in the US tech sector, a component of the tech sector and the US economy generally comes off, that would not change the kind of long-term outlook for India.
But in the short term, it may make people question, in the rest of the world question the extremely high valuations. I think nobody doubts that India is going to continue to do well in terms of tech, in terms of contribution to AI, contribution to business process outsourcing and so on and that will continue to support the economy generally, continue to support at least an important part of the economy, continue to support the market, but the valuations are extremely rich.

So, in an environment where valuations and multiples in other markets and in core markets, particularly the US, are being called into question by the economic trajectory, the trajectory of the firms, and whatever is happening in the political side and the political economy and Fed policy, those valuations could become a bit more of a constraint than they have been so far.

I do not think it is going to make anyone rush out to get rid of their India exposure or reduce it meaningfully, but it may slow down the inflows, which could have a bit of an effect.