Markets have seen a shift in sentiment following the finalisation of the US-India trade agreement, with foreign institutional investors (FIIs) beginning to return after months of heavy selling. However, despite policy stimulus and improving quarterly numbers, concerns over
earnings growth and the disruptive impact of artificial intelligence on jobs and business models are emerging as key risks.
Speaking to ET Now, Marcellus Investment Managers’ Founder Saurabh Mukherjea said the long-anticipated US-India free trade agreement has been a major trigger for renewed foreign investor interest.
“As we expected for many months, the US-India FTA would be the trigger, the comfort that foreign investors need to reconsider India seriously. Those months that America had a 50% tariff slammed on us, we really were not in the reckoning globally. I do not think any foreign investor would seriously consider us then. But now that it looks like the worst is behind us and the proper FTA itself will get signed in a couple of months, foreign investors are interested again.”
However, Mukherjea cautioned that serious foreign inflows are still being held back by a lack of confidence in earnings growth, despite multiple policy measures aimed at reviving the economy.
“What is holding back serious money is still the lack of confidence in earnings growth. Earnings growth has been decent this season, better than Q2 which was dismal. But given the potency of the GST cut, of the income tax cuts that the FM delivered last year, and 125 bps of rate cuts, it is literally full-on stimulus to juice up the economy. Given all of that, the earnings are still not doing justice to the sheer effort the government and the RBI are putting in to revive the economy, and that is worrying several investors including us.”
While pockets such as FMCG and automobiles have delivered stronger results, Mukherjea said broader consumption has not shown the buoyancy many had expected. He pointed to artificial intelligence as a key structural factor weighing on middle-class employment and spending.
“There are bright spots. FMCG has had a good earning season, auto has been having a good earning season now for a couple of quarters. But across the piece, in totality, we are still not seeing the buoyancy in consumption that we had expected. And the reason for that is the AI impact. I think jobs are going. Companies are obviously keeping quiet about it, but jobs are going.”He added that the impact is already visible in certain real estate markets.
“You can see the impact on real estate markets such as Hyderabad and Bangalore where residential real estate demand has conked off pretty seriously, and that is something we now need to take into account.”
With the trade deal largely in place, Mukherjea said his firm is increasing exposure to export-oriented manufacturers, but warned that the broader focus will now shift to how deeply AI affects employment and consumption.
“The US trade deal is done, or the crux of it is done. People like us are beginning to increase weights in export-oriented manufacturers. We are hoping to make more money from our export-oriented manufacturing plays. But a lot of focus will now shift on what is the potency of AI’s impact in terms of taking out middle-class jobs.”
Addressing the ongoing weakness in IT services stocks, Mukherjea said the selling pressure may not be over yet, pointing to similar trends playing out in the US.
“There is plenty to go here. If you just step back and think about it, there is a broader story. If you look at the selloff in America in the brokerage and wealth management names, the broker and wealth management names have lost almost 20% of their market cap in America this week.”
He said markets are increasingly discounting the vulnerability of intermediary-driven business models.
“What the market is increasingly discounting in the United States is not just traditional coding, but almost any type of information intermediation. Any business which is in the business of taking lots of data, condensing it, and giving the customer a view and then a service on the back of that view — whether it be hotel bookings or IT services or strategy advice or stock recommendations — that whole piece is at risk.”
Mukherjea warned that this disruption will extend well beyond IT services and could fundamentally reshape multiple white-collar industries, including asset and wealth management.
“I do not think this is going to be limited to IT services. The disruption AI is causing is a fundamental rebuilding of business models not just in IT services but even say in our industry.”
On the future of large IT services firms, Mukherjea outlined three major layers of impact: consolidation, changes in the nature of services, and a sharp reduction in employment.
“The first is that I do not think there will be this many IT services companies a decade out. We have too many IT services companies not just in India but across the world, and there simply is not that much need.”
He said the nature of IT services will also shift away from traditional coding.
“The type of service will change. It will be far less time and materials. It will be far less coding. There will be far more business architecture and strategy advice bundled into it.”
Most significantly, Mukherjea expects employment levels in the sector to fall sharply.
“By orders of magnitude, the number of people employed in this industry will reduce. Just to give a broad sense, I think TCS employs 600,000 people. Microsoft would be around 200,000–250,000. A firm like OpenAI will be around 2,000, and DeepSeek employs 200 people.”
He added that job losses are already visible in data from recruitment platforms.
“From what I can see in the Naukri numbers, this sector is shedding jobs already at the rate of 10–15% a year. So that story has a long way to go.”
Mukherjea concluded that while export manufacturing may benefit from global trade realignments, AI-led disruption will force multiple industries to rethink business models and employment structures over the coming years.
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