Business
Venugopal Garre on AI, earnings and long-term view for Indian markets
“What a rough ride the markets have been having, and I know the bigger thought is that all of this is going to rest at some point. Eventually, what matters for the markets is earnings, but I think the question is how do you deal with this? What is playing out right now and oil and the kind of shock from that?” Garre said.
He acknowledged the unprecedented nature of the situation. “This is a pretty unprecedented situation. I do not think I thought about this sort of scenario even at the beginning of this year, as I downgraded India to neutral for reasons which appear so simple now, and things have got extremely complicated at this juncture. The honest view is, if you were to look at the broader narratives hitting India particularly, let us put the world aside, a large part of the story was about AI and how it is going to impact potential job creation in the future in India… the so-called anti-AI trade.”
Garre noted how attention on AI has shifted in recent weeks. “Exactly, we will come back to that in a couple of weeks. But the second thing is, you thought everything else is quieter in the real world with trade treaties getting signed, which were actually positive in some way, and suddenly you had this event shaping up, which is going to now lead to a definite impact. It is not about crude; it is also about broader disruption in the global supply chains. So, yes, there would be earnings impact because of all this; we cannot shy away from that. The reality is, for any investors to think about what to do from here, the simplest way is to lengthen your horizons. Number two is, do not take calls on when the war will end. I do not think anyone knows when the war will end. We all know it will end someday. But if we were to invest today, you have to take a view that war is going to continue for a while and then build your portfolio for the next 12 to 24 months.”
He emphasized patience and a long-term approach. “If you are taking a view that the war is going to end in two days, then the call is very different. Then you would be taking the highest beta, directly impacted sectors like construction or travel or OMCs. Those kinds of things we would be taking a call on, but I do not think we are in that stage yet. So, I would be sort of taking the view that we are not very far away from the bottom. These levels look really interesting for investors in general to build positions in some sectors over the next couple of years.”
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Addressing oil sensitivity and supply chain disruptions, Garre said, “Yes, I mean, there is an economic impact for sure, and if I were to just put aside those which are directly impacted…directly impacted are those if you are actually working in the Middle East and doing some physical activity out there. But indirect impacts, it is a difficult thing to measure. For example, the financial sector has seen a deep cut year to date, and it surprises me because if I look at the broader macro context, I do not think we are talking about such a deep GDP cut or a deep credit growth decline or an NPA risk rising within the context of Indian lending. These are the sectors where you would still perhaps look for rebounds, look for safety rather than just playing pure safety through, let’s say, utilities, which is playing out right now. Telecom is another. Why should you have a 17% decline in some of these stocks that we have seen? So, position yourself in those which will rebound, which have fallen, which are not as deeply impacted.”
He highlighted earnings projections for India. “If you look at earnings growth construct for Nifty, FY26 we are going to end at 3-4%, part of it because of the labour code impact we do not really consider it as an exceptional expense. Next year, which is FY27, street has already brought it down to 9-10% growth, and for the year after, as always, it is 15% which is FY28. So, if you think there is going to be an impact on numbers, if we are in a 6-7% CAGR for the next two years as against a 10-12% CAGR, then of course multiples also fall.”On market valuations, he added, “Now, we are not going to reach worst-case multiples like 12-13 times earnings during the GFC. We never as equity investors play for Six Sigma. If we always keep thinking about Six Sigma events, then we would never invest in the markets. We always look for baseline, not so worst-case scenarios, but broader safe worst-case scenarios.”
Discussing foreign institutional investor (FII) trends, Garre said, “Two things have essentially changed. One is cyclical factors. Earnings growth that India has been delivering has been fairly meagre. We have to agree that we were low single-digit earnings in the last 12 months, and if consensus is forecasting 9% growth for Nifty over the next 12 months, that is also not a great number to look at. The second thing is AI as a narrative. At some point, AI will peak, and I am not in the anti-India trade per se. Recently, we have interviewed 30 different tech professionals across the world…My read from that was actually not negative in terms of IT services. I actually felt there is a lot more opportunity which will come in for services. That anti-AI trade is more because of where we are in the AI supply chain. We are not in the foundation model supply chain, not even in the infra supply chain right now. This is a first leg. We are going to be in the application supply chain, and that is not yet started materially. As that happens, India will start to benefit from it.”
On AI adoption, he explained, “So, it has already started, but it is very early-stage experimentation. Corporates are not doing any upheaval in their entire business models to implement AI. They are just trying and testing AI agent solutions in smaller areas, customer support functions, and trying to spruce up capacity. Nobody has deeply embedded AI in their workflows. The tipping points take a year, year-and-a-half.”
Finally, Garre commented on IT services valuations: “Valuations in the context of potential improvement in cyclical growth over the next two-three years…attractive is probably a tricky word to use because they are not cheap in any context compared to what earnings growth is in the near term. Probably the market looks better than IT services today on valuations honestly. But I am talking about revenue growth accelerating and margins moving up in the next three years.”
As global markets contend with oil shocks, war uncertainties, and evolving AI narratives, Garre’s guidance emphasizes a measured approach: focus on resilience, identify sectors poised to rebound, and maintain a long-term horizon for Indian investors.