AI, Energy Prices Disrupt Indian Equities; DBS Bank Sees Transition

Indian firms leveraging AI are poised for long-term success, but DBS Bank warns of disruptions from AI and high energy prices. The bank has downgraded India to neutral, citing weakening sentiment, but notes investment opportunities in AI and energy.

Indian companies that successfully pivot towards AI-enabled services and productivity solutions are likely to emerge as long-term winners, even as domestic equities navigate a period of transition driven by the twin disruptions of artificial intelligence and elevated energy prices.

AI and Energy Prices Reshaping Indian Market

Addressing an investment outlook media briefing webinar, DBS Bank said that while India remains one of the world's fastest-growing large economies, these structural forces are reshaping corporate earnings expectations, market valuations and sector leadership across the domestic market.

DBS Bank Chief Investment Officer Hou Wey Fook said, "We remain all-in on AI-related exposure," highlighting the bank's continued conviction in AI-driven investment opportunities despite increasing market concentration.

DBS Bank Downgrades India Amid Weakening Sentiment

The changing environment has already prompted market adjustments, reinforcing DBS Bank's downgrade of India to a neutral stance as businesses report a steady weakening in sentiment.

The momentum witnessed across the broader Asian region has largely bypassed India. The bank said, "India and Indonesia have not been touched by the heady momentum in the region. In both cases, businesses are reporting a steady weakening in sentiment."

AI's Disruptive Impact on India's IT Sector

The impact of artificial intelligence is most visible in India's large technology services and outsourcing sector, historically a key contributor to exports, employment and equity market performance.

According to the webinar, generative AI is increasingly automating coding, customer support and back-office processes, directly challenging the traditional labour arbitrage model adopted by major Indian IT companies.

The disruption has already resulted in earnings downgrades and heightened volatility in technology stocks as investors reassess long-term growth prospects.

New Investment Opportunities Emerge

At the same time, the AI transition is creating fresh investment opportunities across cloud infrastructure, data centres, semiconductors, cybersecurity and digital platforms.

Macroeconomic Challenges and Energy Sector Opportunities

Simultaneously, elevated energy prices continue to pose macroeconomic challenges for India, where crude oil imports account for nearly 90 per cent of domestic demand.

Higher crude prices are adding pressure on inflation, widening the current account deficit and squeezing margins across transport, manufacturing, aviation and consumer-facing sectors.

The DBS Bank official also pointed to opportunities emerging from the evolving energy landscape, saying, "We see diversified opportunities in other themes, particularly energy," as rising demand for power and electricity is expected to be supported by energy security needs and sustained AI-related capital expenditure.

Geopolitical and Trade Headwinds

Compounding the energy challenge, the Indian Rupee recently weakened to a historic low against the US dollar.

DBS Bank noted that India faces distinct disadvantages in the current geopolitical and trade environment. "With 15% of its exports bound for the Middle East, the lingering uncertainty around the Strait of Hormuz presents a considerable headwind for Indian exporters. Its lack of participation in the region's extensive electronics supply chain further constrains upside," the bank noted.

It further noted that "in the face of energy disruption, India is particularly vulnerable due to its high energy intensity."

Structural Strengths and Future Sectoral Shifts

Despite these near-term headwinds, DBS Bank said India's structural strengths continue to support domestic demand through public infrastructure spending, manufacturing incentives and ongoing digitalisation.

Financials, industrials, defence, utilities and renewable energy are expected to benefit from capital expenditure and energy transition policies, while wider AI adoption could improve long-term productivity across sectors such as banking, healthcare and telecommunications.

Consequently, investors are likely to witness greater sector divergence, with traditional IT outsourcing models facing prolonged disruption while capital increasingly shifts towards companies positioned to benefit from AI infrastructure, domestic capital expenditure and productivity-enhancing technologies. (ANI)

(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)