No betting on market till July; AI companies to take a couple of years to take off in India: Ajay Bagga

Economic Times

2 days ago

Ajay Bagga, Market Expert, says Agentic software adoption is growing, with Microsoft leading across platforms, which Indian companies are poised to capitalize. Economic headwinds in China and the US may impact IT spending, necessitating productivity and cost optimization through AI. Data centers are crucial for AI's expansion, presenting opportunities for utility companies and well-funded startups, especially those integrating solar power and storage solutions.
ADVERTISEMENT What is your view on the markets because some people hold the view that this year markets could be tough. You have to be selective if you want to make money. What is your assessment?
Ajay Bagga: All bets are off till July. July 9th is an important date as the tariff agreements start coming in that will help market sentiment. A 12-month view is quite strong. We will be quite okay on a 12-month basis. For the next 40-45 days, we have to wait and watch. We have seen a lot of back and forth on the Trump administration and those are the two big issues for the world. One issue is the global trade war and where tariffs will eventually settle in and the second big issue is the US fiscal deficit. These are the two things hurting global risk sentiment.
In terms of flows, whenever there is a reduction in the tariff risk sentiment, we see flows coming to the US, otherwise we are seeing flows going largely to Europe and to Japan. Some amount coming into emerging markets as well, that also we are seeing. Can India become the services factory of the world? Gautam Trivedi explains
ET Now: You just said that flows are likely to go to Europe and Japan and some to the emerging market space. So, within that space, where is India positioned? How do you see the outlook going forward for the Indian market?Ajay Bagga: The Indian market is positioned well, but for the global overhang, we would have seen even better inflows coming into the Indian markets. The issue is global. As far as the domestic macro goes, domestic earnings have been stable, they have not been great, but they have not been highly disappointing as well. It is a stable earnings outlook. Nearly eight months are over, and the ninth month is below the previous all-time high – so in a minor downside. Markets have had a good time to consolidate. Again, the issue has been global and we have seen a return of FIIs in May. We expect that to continue further as well. But more issue is global than domestic and that is why the favoured sectors are also more domestic for now. But in the next six months if we get some more clarity on the Trump policy format, then it could come back and we could see global sectors getting benefited. Otherwise, we are focusing more on the domestically-oriented sectors.
ADVERTISEMENT We would love to deep dive more into your preferred sector. But firstly, how do you see the whole chatter around the AI transition because some of the experts also highlight that whenever we have witnessed a technology transition, the Indian companies have adopted it very well but at a later stage. Help us with your assessment of the AI boom because some of the US and even Chinese companies are taking the leap. How will Indian players transition to that?
Ajay Bagga: It is catching up. You are getting the end use cases. Agentic software is being launched. A lot of it will be how Microsoft is approaching it, where they have put their software on every cloud platform. They are not only limiting themselves to Azure, but they are going across a lot of platforms and giving end use solutions to customers for that. I think Indian companies will jump start that. We will see a lot of that coming in. But the big issue is the Chinese slowdown and the US looming slowdown. We are looking at 0.5% growth in the US for this year, next year 1.6% as against about a 2.5% growth that the last three years were seeing. There is some amount of slowdown in the US and what gets cut is first marketing and then software development and that is what our companies are facing. We have to have a strong productivity push or a cost cut push that we are optimising or are reducing employment by bringing in AI agents. We have not transitioned to those kinds of things yet and nobody in the world has brought that singularity into AI yet.
ADVERTISEMENT The agents are very poor in comprehension and in offering solutions. Wherever the customer can enter the data, as happens in finance which we have done and our IT companies enabled that over the last 30 years, that was a big change, like earlier customers would walk into a branch, it was costing you Rs 200-300 to serve a customer. Then, we took it to the phones. It became Rs 10-12. Then, we brought it online, when it became customer-centered. Today we are all making our own payments, we are all enabling our accounts to pay our utility bills, the cost has gone out of the banks totally and it is all reconciled, it is all done automatically, it has happened from industry to industry, so that was the boom over the last 30 years that our IT did. AI is just starting. So, right now the picks and shovel companies like Nvidia who make the chips are doing well.
ADVERTISEMENT The next level is who sets up the data centre and the power suppliers for them. Power suppliers to those data centres will do well. Third is companies which bring the end use, but then the end user has to be ready for it, has to be able to fund it. They are not finding it so much right now. Another trend I am seeing is the GCC trend. Since there are now 2,900 captive and third party GCCs running in India, all our companies are looking at funding and manning that and offering that kind of service which is easier than AI. AI will be the big one, but maybe it will take another two years before we start seeing that difference coming on the revenues and the profit front.
Though data centres are long-term stories, do you find good opportunities in the listed space for specifically Indian companies? Though a lot of companies are now talking about the data centre theme, how will it contribute? Some of these are MNCs and some of the companies came out with the recent earnings as well, but do you have much confidence there that these companies will be able to deliver? Are there enough players in the listed space?
Ajay Bagga: Not enough. There are a few who are talking about it. We have not really seen that getting translated yet. But there will be utility level companies which will come in. So, running a data centre is not necessarily an IT company kind of a work, but it helps them to gain clients to have that capacity, like the Government of India mentioned they are going to buy some 12,000 more GPU chips for the Indian stack, for the weather programme and private players also linked into defence.
ADVERTISEMENT That way data centres will be done by the large corporates in the country and the well-funded startups will be able to do it. It is a crying need. It will happen. And if you can link it up to solar along with storage, like last week we had a few days where the incremental cost on the electric exchanges went to zero because solar was really performing in the heat. We are going to see weekends where you will get a surge of free power coming in. If you can store that, along with data centres, that will become a business model. So, there are some players, I would not like to name them, but one has not seen on the ground movement coming through yet, but when it happens, it will be very big. Everyone will use AI. And we take it very simply like I was told by a Harvard professor, make sure whenever you are using any of these tools, you are thanking them because in 10 years the machine will remember who was rude and who was saying the please and thank yous. But then, OpenAI came out and said it is costing them millions of dollars every time you are saying thank you to AI or this craze of creating portraits is costing so much data centre capacity, so much cooling capacity, so much power, which we do not realise. We are asking AI to write our emails. That day I was talking to one of the doctoral guides. They had sent me a thesis to read and then they called me very fast and said, sir do not waste your time. I said, what happened? They have this software which tracks if the thesis has been pirated from somewhere or plagiarized and they said 92% of the thesis is written by ChatGPT, so do not waste your time. We are asking the student to rewrite it.
So, we are seeing things like that happen and all at the back of it will be data centres. So, you need, they will be like electricity. You will need data centres to process all this. We take it very simply. Write me an email, write a thank you and put this and immediately it comes, but it costs a lot at the back end.
(You can now subscribe to our ETMarkets WhatsApp channel)