Do it yourself

A consistent rise in global equity prices, not accompanied by a matching earnings growth, has raised concerns about the sustainability of current valuations. In particular, the tech sector valuations in US technology have raised alarms. Several reports have highlighted that the market conditions and investors’ sentiments bear a stark resemblance to the dotcom exuberance (1999-2000) period, and as such markets may have already crossed the fairness redline and moved over to the realm of bubble. ​

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In this context, I would like to draw readers’ attention towards two particular reports that I find representative of the analysis advising caution.

“Dotcom on Steroids” by GQG Partners.

First report, titled “Dotcom on Steroids” has been published by GQG Partners, USA. This report draws parallels between the current AI-driven tech boom and the dotcom bubble of the late 1990s, warning of similar risks ahead. The report postulates-

“Today's market, particularly in the tech sector, exhibits dotcom-era overvaluation, with lofty multiples, slower earnings growth, and a weaker macroeconomic backdrop, in our view

We believe today's technology sector no longer represents forward-looking quality due to decelerating revenue growth, collapsing free cash flow, and increasing competition.”

The S&P 500 today trades at 23x TMF EPS—nearly the same as in 2000, but with slower growth (10% vs. ~18% without any stimulus then). Most tech stocks already trade at 1999-like multiples, unlike 1999’s budget surplus, the U.S. now faces fiscal deficits, weakening the backdrop.

The key points analyzed in these reports are as follows:

Rising Capital Intensity

Big Tech’s capex now consumes 50–70% of EBITDA (similar to past telecom and energy bubbles). This undermines the old thesis of tech as “hyper-scalable” with minimal investment.

·         Microsoft in 1999: traded at 60x earnings with 35% revenue growth, but took 15 years to recover from the crash.

·         Cisco: once the largest company during the internet bubble, driven by over-optimistic growth projections—similar to Nvidia today.

·         Today’s valuations (Nvidia, Palantir, ServiceNow) resemble bubble-era extremes.

Penetration driven growth hitting peak

“Most of today's Al capital expenditures are funded by advertising revenue. Digital advertising now accounts for more than 70% of all advertising, so the penetration-driven growth story could be approaching its peak. Morgan Stanley expects the US digital ad industry to grow at a 9% compound annual growth rate (CAGR) from 2025 to 2030-less than half of its 20% CAGR between 2014 to 2019.”

·         Heavy dependence on AI-related capex funded by cyclical advertisement revenues makes growth fragile.

·         Analysts fear AI giants may be this generation’s “Nifty Fifty”—dominant but overpriced.

Competition landscape changing

During the 2010s, big tech was dominated by monopolies, e.g., Amazon dominated e-commerce, and Google dominated search. This not valid today. All big companies directly compete against each other in the same space. Cloud market is a good example of the deteriorating competitive landscape. This was once a stable three-player market: Microsoft, Amazon, and Alphabet. However, a disruptive fourth player (Oracle) just entered in a big way and is explicitly undercutting peers on pricing by 40%. Adding to the shakeup, CoreWeave-a financially constrained fifth player with an arguably more cutting-edge product-has announced its intention to aggressively gain market share through pricing pressure.

Big tech is now incumbent not disrupter

In the 2010s, big tech were the disruptors. Today, big tech is the incumbent, while Al is emerging as a highly disruptive force. AI winners would be known only a decade or more later, just like the internet era winner (Meta, Google) was declared several years after the bubble burst.

Conclusion: Tech is no longer uniquely superior in growth; risks of poor investment outcomes are high if bought at inflated prices.

Voltage too high, be cautious, Ambit Capital

Second report titled, “Voltage too high, be cautious”, by Ambit Capital, India, cautions that near term growth in the electrification of India theme are more than priced in, but the mid-term risks like risks (slowing demand, BESS substitution, subsidy phase-outs, rising global competition) are not yet considered. It argues that better opportunities may exist outside the tech sector with lower risk and similar returns.

·         Post-Covid electrification boom (driven by transmission & distribution demand) created supply-demand gaps and high margins for equipment makers. But these conditions are peaking. Risks are rising beyond FY28 as growth slows, competition intensifies, and margins normalize.

Demand–Supply Outlook

·         HV transmission equipment is currently undersupplied, but heavy capacity expansions (transformers, switchgear) will narrow the gap in 2–3 years.

·         National Electricity Plan (NEP) targets show >30% decline in installations in FY27–32 vs FY22–27.

·         Battery Energy Storage Systems (BESS) will reduce the need for fresh transmission infra post-2028.

·         Private capex remains muted (capacity utilisation ~75%).

·         PGCIL capex plan accelerates till FY28, then flattens.

Execution Risks

·         Land and regulatory delays already caused FY26 targets to be cut.

·         Order growth likely to peak in FY26–27, then plateau.

Policy Risks

·         Gradual removal of ISTS waivers (inter-state transmission subsidies) will raise RE project costs and reduce transmission demand.

·         Shift toward intra-state RE sourcing could hit long-distance transmission growth.

Competitive Landscape

·         Local subsidiaries of MNCs like ABB, Siemens, Siemens Energy gained share recently, but global majors (Schneider, WEG, Nidec, Eaton, Delta) are scaling up aggressively. Schneider, in particular, is expanding 2.5–3x capacity in India.

·         Export contribution shrinking for most domestic players.

Margins & Returns

·         Margins peaked in FY24; price growth moderating.

·         RoCE expected to decline.

·         Multiples corrected from Sept/Oct 2024 but still downside risks persist.

These two are only representative reports. I find several such cautionary reports on the rising (and unsustainable) high valuations, slowing growth, rising household (retail) exposure to these high valuation stocks and sectors, elevated macro concerns and explosive geopolitical conditions.

As has been the case on every previous occasion, most market participants appear to be believing that they still have some distance to cover before this bubble burst, and they will be able to “exit’ well in time – regardless of the fact that it has never happened in the past.

In my view, the US market bubble is within striking distance of the needle. Obviously, every market in the world will feel the tremor, whenever the US tech bubble bursts. India may be no exception. However, India is much better placed this time compared to 2000, because the Indian markets have been underperforming the global markets for the past one year, FII holdings is now at lowest level since the global financial crisis, speculative activities have reduced materially due to consistent regulatory intervention, Indian markets have insignificant exposure to high-tech sectors like AI, Cloud, semi-conductors etc., and a large part of Indian markets is still reasonably valued (though not cheap).

More on strategy for the Indian markets, next week.

Also read

Dark clouds gathering on the horizon – 1

Dark clouds gathering on the horizon - 2

For decades, the United States has held a unique place in the global imagination — as the land of opportunity. Its greatest strength may not lie in military might, financial depth, or diplomatic reach, but in its remarkable ability to attract and absorb the best minds from across the world — including from adversarial or war-torn nations.

The most striking evidence of this is visible in America’s talent pool. Professionals of foreign origin — Indian, Chinese, Iranian, German, and more — dominate leadership roles across top corporations, academic institutions, legal systems, research labs, and even sensitive government-linked establishments like NASA. Many of these individuals come from countries that have historically suffered at the hands of U.S. military or economic policy — yet they thrive in the American ecosystem, contributing to its innovation, productivity, and geopolitical leverage.

This magnetic pull continues despite periodic political rhetoric against immigration, restrictions on student visas, and debates around birthright citizenship. Talented people, especially in emerging fields like artificial intelligence (AI), continue to gravitate towards the U.S. in pursuit of better opportunities and freer expression.

Global AI brain drain

Take, for instance, the migration of AI professionals. Between 2019 and 2024, over 12,000 Indian AI researchers relocated to the U.S., according to migration and academic datasets — second only to Iranian researchers. Over 90% of AI PhD graduates from U.S. institutions have stayed back to work in American academia or industry. Many of these individuals were educated at premier Indian institutions like the IITs, whose costs are borne by Indian taxpayers.

China, however, seems to be bucking this trend. In 2019, only 10% of top-tier Chinese AI researchers remained in China after graduating. By 2022, this figure had grown to 26%, thanks to improving domestic research infrastructure and better-funded universities — six of which now rank among the top 25 globally for AI research.

This trend might just be the beginning. Recently, Canadian mathematician Joshua Zahl, credited with major advances on the century-old Kakeya conjecture, announced his move to Nankai University in China as a full-time chair professor. If such high-profile migrations become common, it would mark a structural shift in the global knowledge economy — one that the U.S. may no longer dominate unchallenged.

Opportunity as a national strategy

What sets the U.S. apart is not just that it welcomes immigrants, but how it integrates and enables them. Many other nations — Australia, the UK, Canada, Germany, and France — have also absorbed millions of immigrants over the past three decades. Yet, none have reaped the economic and strategic benefits at the scale the U.S. has. One reason could be that these countries often pursued immigration for social balancing (aging population, refugee resettlement) while the U.S. positioned itself as a platform for economic opportunity and personal advancement.

This distinction is critical.

India’s blind spot

India, meanwhile, continues to suffer from an unchecked exodus of both talent and wealth. Not only do our brightest minds — trained at the cost of the exchequer — leave in search of better prospects, but increasingly, our wealthiest families are choosing to settle abroad, relocating their capital and potential job-creating capacity with them.

While we celebrate our ancient heritage, digital prowess, and rising geopolitical clout, the hard truth remains: India is still not seen as a land of opportunity — neither by outsiders nor, tragically, by its own elite. We are yet to hear of a rich or highly skilled professional choosing India as their destination of aspiration.

This is not just a branding issue; it is a systemic failure. From bureaucratic hurdles and inconsistent policy to inadequate research funding and a stifling regulatory climate, we are often indifferent — if not hostile — to the very people we need to retain or attract.

Time for radical rethinking

The continued erosion of India’s human capital advantage must not be dismissed as collateral in a globalized world. It is a serious strategic risk. We need a radical rethinking of our talent, research, and immigration policies — including steps like:

·         Creating elite research institutions with global faculty and unrestricted funding

·         Offering residency and startup incentives for global entrepreneurs and returning Indians

·         Reforming academic governance and expanding autonomy

·         Reimagining urban centers as global innovation hubs, not just tech parks

It’s time we recognize that global competitiveness today is not just about trade or missiles — it's about minds. And talent goes where it feels valued, not just needed.

In the classic Hindi film Sahib, Biwi Aur Ghulam (1956), the old aristocracy is shown flying pigeons while their estates crumble around them. There’s a metaphor in that. India must not fall into the trap of living with hubris, celebrating ancient glories while losing out on the future.

(Note: This post has been edited with the help of ChatGPT)

 1H2025 was marked by stressful events, high volatility, and uncertainty. In geopolitics, several conventions were breached and new doctrines established. The war between Russia and Ukraine continued. India and Pakistan had a brief but intense conflict. The US entered the Middle East (Israel-Palestine) conflict by attacking Iran.

Climate wise, India had a mild winter followed by a mild summer, impacting crops. Europe continued to witness warmer weather, while the US, Canada, UK, Korea and several other countries in Africa witnessed intense and widespread wildfires, causing immense damage to the climate, lives of people and economy.

Politically, the US witnessed one of the most boisterous power transitions with Donald Trump taking over as the President (POTUS). He started his second term in the White House with radical changes in immigration, trade, and climate change policies. This put the US administration on the path to confrontations with citizens, judiciary, major trade allies (e.g., Japan, EU and China), strategic partners (E.g., Mexico, GCC, Canada and India). Towards the end of 1H2025, however things appear somewhat calming and progressing towards sustainable resolutions. The process of developing a new world order based on new ground realities and future prospects took a few more strides.

Technologically, Artificial Intelligence (AI) entered the lives of common men with Google and X (Formerly twitter) launching their user-friendly models. China launched DeepSeek to compete with ChatGPT (Open AI) and most social media platforms, search engines, financial and other services providers, integrating some sort of AI interface for the users.

Markets were volatile as the forces of hope and fear took turns to dominate the participants’ sentiments. In the end, the forces of hope appear to have emerged stronger. Most markets have recovered their losses and are progressing well on the path to growth.

In India, the economic growth returned to the normal pre-Covid trajectory, as the base effect of FY20 and FY21 low growth tapered off, and external challenges mounted. Equity markets settled close to their all-time high levels recorded in 3Q2024.

The following are some of the highlights of the performance during FY25.

Equity Markets

The Indian equity market managed to end 1H2025 with strong gains, despite yielding negative returns for three out of the six months. Indian equities performed in line with the European and US equities. The benchmark Nifty yielded a return of ~8% (9% in USD terms), which was better than the US markets (S&P500 +6%), Japan (Nikkei +1%) and Europe (Stoxx600 +7%) but much lower than South Korea (KOSPI +20%), Brazil (BOVESPA +14%) and Germany (DAX +20%). The valuation premium of Indian markets to the other emerging markets therefore remained elevated.

Financials saved the day for Indian benchmark indices

The benchmark Nifty (+8%) sharply outperformed broader markets (NSE500 +5.5%, Midcap Nifty 100 4.4%, Smallcap Nifty 100 +1.6%). The gains in benchmark indices were mostly led by banks (Nifty Bank +12.7%). Overall market cap of NSE was higher by 4.6%.

Sector-wise, Financials, Private Banks, Infra were top outperformers. IT Services, Realty, Pharma, FMCG, Energy were notable underperformers. Micro-sector-wise, Defense, Capital Markets, Healthcare, Fertilizers were outstanding. Renewable energy and real estate builders were notable losers.

1H2025 witnessed 3/6 negative months

The benchmark Nifty50 yielded negative month-on-month (MoM) returns for three out of six months in 1H2025. April was one of the best months ever for Nifty, yielding a gain of 16% MoM. The market breadth was negative in three out of six months implying much higher volatility in the broader markets.

Institutional flows positive

Over institutional flows were materially positive for 1H2025. Net domestic and foreign flows in the secondary equity market amounted to Rs2630bn. Foreign Portfolio Investors (FPIs) were however net sellers of Rs945.36bn in the secondary market, while domestic institutions pumped in Rs3575.75bn. On an encouraging note, FPIs were net buyers in the last four months of 1H2025. The nifty-institutional flow correlation was very weak in 1H2025.

Debt and Currency Markets

Indian debt and currency markets were volatile in tandem with the global trend. The benchmark bonds managed to close 1H2025 with decent gains, the long-dated bonds were lower. USDINR ended almost unchanged, but EURINR, JPYINR and GBPINR were materially weaker.

RBI cut the policy rates by 100bps and Cash Reserve Ratio for commercial banks also by 100bps during 1H2025. The benchmark 10-year treasury bond yields eased to 6.31% from 6.80% at the beginning of the year. Lending and term deposit rates were lower by up to 10-25bps. The yield steepened sharply.

The RBI maintained its policy stance to “neutral”. The liquidity position remained comfortable with RBI conducting OMOs to keep the system liquidity in surplus. The credit growth continued to decline; however, there are signs of corporate credit demand picking up. Overnight and call money rates cooled ~50bps.

Economic conditions

4QFY25 GDP growth (+7.4% yoy) came sharply higher than the estimates. The consensus estimates for FY26E GDP growth however remain pivoted to ~6.5%. CPI Inflation mostly remained within the RBI’s tolerance band of 4-6% and has recently breached on the lower side. Core inflation has also eased. Real rates have mostly remained in positive territory during 1H2025. Fiscal deficit continued to decline. The private sector investments failed to gather the desired pace, despite several government incentives. The government capex showed some improvement in 1H2025. External conditions remained stable during 1H2025 despite geopolitical conditions remaining volatile. Lower trade helped the current account balance. However, BoP was briefly negative. RBI replenished most of its USD reserves, expended to support USDINR earlier in the year.

Commodities

1H2025 was a mixed period for commodities. Precious metals (Gold +26%, Silver 23%) and Copper +12.8, recorded good gains, while energy (Brent Crude -11%, Coal -12%), other metals (Steel -10%, Zing -8%) and soft commodities (Sugar -16%, Corn -11%) ended the period with strong losses.

Crypto shine

Cryptocurrencies further strengthened their position with material rise in trading volumes and market capitalization. Bitcoin ended the period 1H2025 with a strong 14% gain. More jurisdictions accepted cryptocurrencies as a valid medium of exchange, financial asset and/or tradeable asset.

A famous fund manager recently expressed serious concerns about a “financial crisis” that is just about to hit the Indian middle-class households (see here). In a podcast with Mint, he said, “With household financial savings at a 50-year low and debt levels (excluding mortgages) among the highest globally, the country is dangerously unprepared for a looming wave of tech-driven job disruption.” He was apparently referring to the disruption created by the popularity of “Artificial Intelligence” (AI) in the global job market.

I have no disagreement with the analysis of this gentleman. In fact, to a large extent I do agree with his concerns. The fabled Indian middle class may indeed be facing an unprecedented crisis. However, I have my reservations about AI causing or accentuating this crisis. I firmly believe that this advancement in technology, just like all the previous ones, will definitely improve overall employment prospects, in particular, and quality of life, in general.

If anything, I see AI — like past technological leaps — as a net enabler. The threat isn’t AI; it’s how unprepared we are to adapt to it.

History is full of examples where transformative technology triggered fear, resistance, and dire predictions — most of which didn’t age well. For example, note the following developments.

·         In the 19^th century, grave concerns were expressed about the adverse impact of using motorized vehicles. Concerns were raised about the potential dangers of motorized vehicles to horse riders and horse-drawn carriages, especially in terms of speed and noise. The British Parliament devoted significant time on debating (i) potential displacement of horse-related industries, such as carriage building and horse feed businesses; and (ii) the potential dangers of motorized vehicles to horse riders and horse-drawn carriages, especially in terms of speed and noise.

The Locomotive Act 1865 (Red Flag Act), a historical example of resistance to technological progress, was passed to impose strict speed limits (4 mph in the country, 2 mph in towns) and require a person to walk ahead of every motorized vehicle waving a red flag to warn horse traffic.

The Highways and Locomotives (Amendment) Act 1878 and the Locomotive on Highways Act 1896 eventually relaxed these restrictions, reflecting growing acceptance of motor vehicles.

·         Employees’ unions of Public Sector Banks in India went on a 10 days strike in early 1990s, when the government decided on computerization of banking operations to improve efficiency and scalability. Job security was their prime concern. By October 1993, unions reached a Computerization Settlement Agreement with the Indian Banks' Association (IBA). This agreement allowed for the gradual introduction of technology in PSBs, with assurances to protect jobs and involve unions in the process. By 1998, about 25% of PSB branches were partially or fully computerized, increasing to 50% by 2001. The adoption of Core Banking Solutions (CBS) and technologies like ATMs transformed Indian banking, improving efficiency and customer service. In the following two decades the banking network expanded at a record pace. The job opportunities created by the expansion were exponentially higher.

·         In the mid-1990s computerized trading platforms (first OTCEI and then NSE) were introduced in India. The traditional stock exchanges resisted the move, fearing that the people employed in the floor based open cry trading system will become unemployed and traditional stock brokers may not be able to adapt to the new technology. Within one decade, the stock markets in India had grown exponentially, creating a significantly higher number of job opportunities.

·         In the mid-1990s, Indian farmers, particularly through organizations like the Karnataka Rajya Raitha Sangha (KRRS), staged massive protests against India’s integration into the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT). The Uruguay Round of GATT concluded in 1994, leading to the establishment of the WTO in 1995. The AoA aimed to liberalize agricultural trade by reducing subsidies and trade barriers, which farmers feared would favor developed nations and multinational corporations. A 1993 rally organized by Vandana Shiva and others saw 500,000 farmers protest against GATT/WTO, highlighting fears of losing food sovereignty. Protests continued into 1995–1996, with farmers’ groups like KRRS and the Bharatiya Kisan Union (BKU) organizing marches, seed satyagrahas (non-violent resistance to save indigenous seeds), and public campaigns to demand India’s withdrawal from the WTO.

It was feared that Liberalized trade would flood Indian markets with cheap, subsidized imports from developed countries, undercutting local farmers. The government however managed to negotiate protections for Indian farmers, such as maintaining MSP and public procurement systems.

Advent of smartphones made several legacy products and technologies like camera and radio etc. redundant; but it democratized creativity and access. The market for music has grown several times, offering opportunity to millions of new performers who would have struggled to get noticed. Millions of enthusiasts have taken to photography, caricatures, dancing, acting, etc. People living in obscure corners of the country can easily access global audiences and markets for their products and talents.

“Artificial Intelligence”, in my view, will similarly democratize several professions, e.g., software development, designing, teaching, governance, farming, etc. It could enhance efficiency several times, just like the commercialization of internal combustion engines (ICE) and the internet did in the 20^th century.

I am not oblivious of the fact that almost half of present-day jobs in developed economies could be at risk of automation, with similar risks in emerging markets like India, particularly in IT and service sectors. Nonetheless, I am not unnecessarily worried about this. But history shows these disruptions are often overstated, and adaptation creates more jobs than it destroys.

I am able to foresee millions of new business ideas and software applications coming out of ordinary households just like the entertainment reels (short video clips) are coming these days. Of course, there could be a pain period as the new job opportunities may emerge with a lag, while disruption may be immediate.

What actually worries me is the fast degenerating public school education system in India. The divide between quality private education (affordable for top 10% of the student population) and poor quality private and public education (availed by the 90%) is widening every year. This divide shall perpetuate the income and wealth inequalities in the country and prevent it from a democracy in the true sense. We may continue to remain a feudal society dominated by a few.

AI isn’t the villain; it’s a tool that can empower millions if we prepare for it. The real crisis is our failure to equip the next generation to seize those opportunities. More on that soon.

Continuing from last week

 Last week I started a discussion (see here) on how the human race might already be in the process of obliterating the memories of the devastating wars fought during the first half of the twentieth century. These wars not only changed the global political map but also deeply impacted international relations, human psychology, demography, technology, and global economics.