India needs fresh new-economy growth drivers to attract global investors: Richard Harris

Home Market News India needs fresh new-economy growth drivers to attract global investors: Richard Harris Richard Harris, Executive Director of Port Shelter Investment Management says the AI sell-off is largely a technical correction, discusses why India is now a neutral market for foreign investors, and explains why the country needs new-economy growth drivers to attract global capital. India now needs fresh "new economy" growth drivers to attract global capital after its strong multi-year run, according to Richard Harris, Executive Director of Port Shelter Investment Management. He says foreign investors have turned more neutral on Indian equities and are looking for emerging sectors that can drive the country's next phase of growth, pointing to private space as the kind of opportunity that could capture global attention. On the broader artificial intelligence (AI) trade, Harris believes the recent correction in semiconductor and AI stocks is more of a technical pullback than the start of a deep bear market. While valuations remain elevated, he says investors are reassessing future revenue expectations after the sector's sharp rally over the past year, adding that India could remain relatively defensive if the AI-led sell-off deepens because it has not seen the same level of excess gains. This is an edited transcript of the interview. Q: Let me begin with AI. The Philadelphia Semiconductor Index has now entered a bear market, nearly 20% off its recent high. Micron is down 20%, Broadcom is down 25%, while the Nasdaq is down only 6% and the S&P 500 about 3%. Is this just a crack that can be papered over like in the past, or is it the start of a deeper fissure? Which side are you on when it comes to the AI trade? A: I think all we are seeing is a reversal of the enormous gains we have seen earlier this year. Semiconductor stocks have risen substantially over the past year, and now we have seen a bit of a pullback. It's difficult to call this a real bear market. We don't really have a definition for a bull market. Is a bull market simply up 20%? If so, we have had a five-times bull market and only a one-times bear market. These terms can be a little misleading. Investors don't like share prices falling, usually because they buy at the top. But in this case, prices have come back to slightly more realistic levels, although they are still clearly very high and outside true valuations. We are likely seeing the kind of technical moves that typically happen at this stage of the market. Q: Here in India, the question is whether investors who have made huge gains in AI stocks start booking profits. They won't sit on cash, so could some of that money rotate into emerging markets? Emerging markets had a good week, except Taiwan and Korea. India has been a significant underperformer over the past year and a half. What are your thoughts? A: There is always some rotation in markets. Investor interest has been focused on AI and chip stocks, while other markets have lagged. I think it's too early to say whether we are about to see a major shift from one theme to another. What we are seeing is largely technical. India has one slight concern. It used to represent the new economy through outsourcing, call centres and similar industries. But AI is now affecting call centres and parts of the Indian economy that are no longer seen as new. That's something investors should watch closely. They should keep an eye on what could become India's next new-economy growth driver. At the moment, nothing really stands out, apart from today's story about India's private space mission. That's the kind of new economy story international investors will be looking for. Q: To sum things up, where does India rank in your preference for equity markets? You mentioned India has underperformed and perhaps the market wasn't offering what foreign investors wanted. With new opportunities emerging and the AI trade possibly flattening in the near term, where does India stand in the pecking order? A: I don't know if the AI trade is flattening out. I think investors are beginning to ask where the revenues are going to come from, but I am not sure they are there yet. Maybe they'll have more clarity in a couple of months, after the summer. For now, I think this is more of a technical move. On India, I would say the view is neutral at the moment, whereas previously it was more of a growth story. Don't forget, India has had a fantastic run over many years from a foreign institutional investor (FII) perspective. I tend to look at markets over years rather than weeks. Given that strong performance, it's not surprising that India is treading water while other themes are attracting attention. It will be interesting to see how India develops from here. As I said, we need to identify new industries that can excite markets. I think that's what foreign investors will be looking for going forward. There is another point that investors often forget. If you do have a large bubble, as we've seen in AI, investors tend to sell those markets first. Markets that haven't risen as much can be relatively defensive. I say relatively because if global markets fall, India will also come under pressure. Even so, there is still some defensiveness in staying invested in stocks and markets you like, even if they haven't delivered the spectacular gains seen in the AI sector. For the full interview, watch the accompanying video Catch all the latest updates from the stock market here (Edited by : Unnikrishnan)