The IT Fear Wave Bringing Down Markets
This month has already seen a fundamental shift in the AI narrative
On Episode 797 of The Core Report, financial journalist Govindraj Ethiraj talks to Sheetal Sapale, VP Commercial at Pharmarack AWACS as well as Aditi Nayar, Chief Economist and Head of Research & Outreach at ICRA.
SHOW NOTES
(00:00) Stories of the Day
(01:00) The IT fear wave is spreading and bringing down markets
(05:34) IEA lowers global oil demand forecast for 2026
(06:11) India’s inflation index has thrown out VCRs and VCDs and brought in new constituents. At 2.75% what does it mean?
(18:31) Why India’s weight loss drug market could explode in a few months
(25:04) Google issues a 100year bond, adding to fears of AI exuberance
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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.
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Good morning, it's Friday the 13th of February and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital. Yes, it is Friday the 13th, which of course happens usually more than once a year.
The top stories…
The IT fear wave is spreading and bringing down markets.
IEA or the International Energy Agency lowers global oil demand for 2026.
India's inflation index has thrown out VCRs and VCBs if you knew what they were and brought in new constituents. At 2.75%, what does that mean?
Why India's weight loss drug market could explode in a few months.
Google issues a 100-year bond adding fears of AI exuberance.
It's Fear
Even if it is fear driving it, this is a fundamental shift and reassessment of business models and very existence of a company or sector, in this case, the Indian IT services sector as we knew it. Now, this month has already seen a fundamental shift in the AI narrative transitioning from a gold rush to what analysts are calling software Megadon or the SaaSpocalypse. Global markets are now seeing what some are calling a ruthless repricing phase, erasing about $1.2 trillion in market value as investors move from identifying AI winners to running from those in the AI cross hairs.
Now, the biggest fear at this point is that AI is no longer viewed merely as a productivity enhancer, which we were just about getting used to, but as a direct substitute for the software and services value chain. Now, the actual evidence for all of this is thin or seems to be thin, but the fear is quite real that it might happen or is happening already in some demonstrable way. Moreover, traditional application software firms that rely on per-seat licencing or human-centric processes are being aggressively discounted as autonomous AI agents demonstrate the ability to replicate entire feature sets with minimal intervention.
AI native firms, of course, continue to attract capital. Now, all of this is impacting stocks real-time on India's stock exchanges and they closed lower down on Thursday as a sharp sell-off in IT stocks and heavyweights pulled the benchmark indices into the red. At close, the Sensex was down 558 points to 83,674 and the NSE Nifty 50 was down 146 points to 25,807.
The Nifty IT index was the day's worst performing sector index falling 5.5% and the Nifty financial services index was up 0.38% according to a business standard report. In the broader market, the Nifty mid-cap index was down 0.47% and the Nifty small cap was down 0.6%. So, it is no surprise just to go back to that Nifty financial services index that the financial services index is gaining. As we've said, there is considerable interest and capital flowing into the entire gamut of financial services ranging, of course, from banks to non-bank finance companies.
A day after State Bank of India overtook TCS or Tata Consultancy Services to become the fourth most valuable listed company by market cap, ICICI pulled into the fifth spot on Thursday pushing TCS further down and ICICI's market cap has crossed TCS for the first time since June 2009 according to Bloomberg data. TCS itself fell about 5% to 2,766, its lowest level since December 2020. In terms of year-to-date figures, Wipro shares are down about 17%, Coforge 14%, LTI Mindtree about 14% and TCS about 13.5%. This is happening globally too.
SaaS names like Salesforce and other enterprise software firms have also seen huge selling. And moving on to other asset classes, gold prices were lowered on Thursday after unexpectedly strong US jobs data for January which dented hopes for more interest rate cuts from the Federal Reserve in the near term and spot gold was down to about $5,064 per ounce on Thursday morning and spot silver was down about 0.7% to $83.47 or roughly $83 after rising about 4% on Wednesday according to Reuters. Amidst all the AI fears that we've been talking about and their impact on the markets both India and overseas, India as we mentioned yesterday as well is hosting a mega AI summit in New Delhi starting next week which is also making considerable news for the price that hotels are charging for visitors to stay in at that period and rates are up anywhere between two and five times normal peak depending on the hotel and area.
So if you're planning to go to Delhi, well maybe don't. And other news that's also geopolitical, BRICS co-member and Brazil president Lui Inacio Lula da Silva will be in India for a state visit between February 18th and 22nd. Presumably his hotel rooms were already booked at much better rates or maybe he will pay the peak rates.
Lula's engagements do include attending the AI summit on 19th and 20th of February apart of course from a bilateral with India's Prime Minister Narendra Modi. Lula last came to India for the G20 summit in September 2023.
Oil Down
Oil prices slipped on Thursday as investors digested the International Energy Agency's lowering of its global oil demand forecast for 2026. Brent crude futures were down to about $69.20 on Thursday afternoon and West Texas intermediate crude was down to about $64.50. The IEA said on Thursday that global oil demand will rise more slowly than previously expected this year while projecting a sizable surplus despite outages that cut supply in January.
Inflation Dynamics
Do you know what a VCR is? Well it's a video cassette recorder and if you're as old as I am it's quite likely that you do and if you're not then you don't and yet VCRs were a part of the consumer price inflation index which we all obviously look at every month. India's retail inflation measured by the consumer price index for Jan 2026 was at 2.75 according to data released by the Ministry of Statistics and Programme Implementation on Thursday.
Now let's get back to VCRs. The bigger news of course in some ways is the change of composition of the CPI index and it obviously reminds you of the good old days if you thought they were good and old. Now the CPI inflation data for 2026 January has shifted the base year to 2024 in order to accommodate and reflect how spending patterns have changed in the last 12 years.
So the new additions include rural housing, online media service providers or streaming services, value added dairy products, barley and its products, pendrives, external hard discs, attendants, babysitters and exercise equipment. Some of the items removed from the data include of course VCRs, DVD players, radios, tape recorders, second-hand clothing and coir or rope. Elsewhere the year-on-year inflation rate based on the All India Consumer Food Price Index was at 2.13% for January compared to the same period last year and in rural areas food prices rose by about 1.96%. In urban it was up about 2.4% according to a business standard report.
Year-on-year housing inflation stood at about 2.05 or about 2% and housing prices rose 2.4% for rural and 1.9 for urban. Broadly under this new structure services will have a higher weight while the share assigned to food is down. I reached out to Aditi Nayar, Chief Economist at ICRA Ratings and I began by asking her to walk us through the changes in the composition of the Consumer Price Index and what they meant.
INTERVIEW TRANSCRIPT
Aditi Nayar: A few different sets of changes actually which are there in the new base of the CPI. First of all, the base year itself has been updated to a much more recent year than what we had earlier. And with that, the number of items has gone up.
So there have been some items that were obsolete, that we really aren't using anymore, that have been dropped. And some items have been added, about 59-60 items have been added, which are actually representing closer to a consumption basket, which is current. Also, the number of leases from which the prices are taken have gone up quite significantly, both in the urban and the rural areas.
And there is a new concept of online markets as well. So for the largest cities in India, now prices are also being captured from online markets, which is again closer to the kind of actual spending that we undertake in the present day, as compared to only buying from brick and mortar shops earlier. So this is another interesting development.
And the product groups have basically been updated based on the Coip Corp framework, and the weights are based on the last HCES survey. So the weights are quite different in the new base. So for instance, within the food group, the weight for cereals has been reduced quite substantially.
And also the weight for vegetables and proteins, pulses, has been reduced. Now, this is significant because vegetables and pulses is what was driving most of the volatility in the food inflation in the last several years. So now with that weight going down, actually, it will reduce the volatility of the overall CPI.
Therefore, this should help monetary policy in a sense in being able to strip away that volatility, which was there in the earlier series.
Govindraj Ethiraj: So let me punch two questions. One is, as an economist, does this construction of the index give you the signals that you are looking for to interpret what you would like to interpret about where the economy is going? And second, if the index were to be in its earlier composition, what could have been the inflation rate as we're seeing right now?
Aditi Nayar: I think anytime that you get an update in the base, especially when it comes after a long time, it's very welcome by economists like myself, because it gives a much more updated picture of what's actually happening in the economy. So one interesting change, for instance, which has come in is that now we have housing, not just for the urban areas, but for the rural areas as well. So this is basically, you know, reflecting the reality that not everybody in the rural areas lives in a home that they own.
In the earlier series, we only had rent. We were only capturing housing inflation for urban areas. This, for instance, is a significant change.
And as I was talking about the food items earlier, we are now closer to what an actual diet would look like. What an actual purchasing basket for food items would look like as compared to what was the case in the previous basket. We had actually forecast inflation on the old series at 2.4%, so it's coming higher than that. Actually, there is a big difference in the inflation that we had forecast for food and beverages as for, you know, on the old series versus what has come in in the new series. And this is because of the change in the relative weights and the overall weight as well for food and beverages within the new CPI basket. So it's going to take us a little bit of time to sort of get a more accurate sort of forecasting going forward.
On the new series, we need to understand the different weights and how to really project on the new series going forward.
Govindraj Ethiraj: So if I were to go back as a supplement to the first question, what is this new series or new composition capturing in to your satisfaction that maybe the earlier series was not?
Aditi Nayar: I think, you know, a couple of things which are quite significant to me, I've already mentioned. One is the updated sort of weights for food and the fact that rural housing has been introduced. I think I'm just, you know, going to share some of the other things which they've added.
Things like online media service providing and streaming services. So this is obviously something which is very current. Exercise equipment.
I mean, this again, it's an interesting addition, but it is representing what people actually would be spending their money on today. Some of the items they've removed are really obsolete, like VCRs, VCDs, you know, hiring charges for the same. Radios, tape recorders, CDs and DVDs.
Now, obviously, this is kind of stuff which we stopped using a long time back. Yet our CPI series until last month was continuing to capture these prices. So when you have items that are actually not being used and either the prices are not available or they are static, then, you know, again, it's something that is distorting the data that you have as far as your overall index is concerned.
So it's better to remove them and look at what people actually buy today, what they actually spend on today. Stuff which is actually transacted in the market and therefore get a better idea of how prices are changing based on transactions that are actually happening. COVID, for instance, a lot of items saw transactions not happening at all.
And later when the transactions restarted, you would have seen a big price reset. So prices may have been static for some items because transactions were not happening.
Govindraj Ethiraj: Yeah, right. And to the extent that now this is the decision point for future actions, for example, reserve bank interest rate responses, where do you think this lands?
Aditi Nayar: So my sense is that even when we got the MPC review last week, they had already sort of tweaked upwards their near-term CPI forecasts and the GDP forecast for Q1 and Q2. For FY26, I think they just repeated the number which the MOSB has put out as an advanced estimate, which is actually in line with our forecast for FY26. But for FY27, the MPC has tweaked upwards its own forecasts for Q1 and Q2 for GDP.
And the very near-term for the CPI inflation as well, the numbers were slightly higher than what they had put out in December. So the sense we got even from that was that probably a prolonged pause is therefore already underway. February was expected to be a wait-and-watch policy ahead of the CPI and the GDP series being revised.
But the fact that despite that we were in this wait-and-watch mode, there were slight upward revisions to the CPI and the GDP forecast gave us a sense that probably April will be a pause as well. And that basically a prolonged pause is now underway. The rate cut cycle is probably over.
Govindraj Ethiraj: Okay. And last question. Is there any unfinished agenda in this particular construction of the consumer price index and then supplemented to that?
How are you seeing the new GDP series coming?
Aditi Nayar: Unfinished agenda? Maybe I'm not so sure if there is something significant. I think one thing that I had picked up in one of the conferences that I attended was that for housing, for instance, I'll explain what I understood, that they're going to continue to do the questioning twice a year for the housing inflation.
So that was the case in the old series as well, that they would go to one sixth of the sample every month and then repeat it after six months. So while they are going to continue to do it in the same pattern, but they're going to ask whether the renter expects the rental contract to be revised soon and go back in the month that they indicate that they expect their rent to be revised. I know this will increase the cost of collecting the data.
I would have probably preferred if they actually go every three months instead of every six months. And the reason for that is that, first of all, a lot of rental agreements are probably verbal in our country. I don't think there's a lot of contracts.
So the renter is probably at the mercy of the landlord in terms of when the next rent renegotiation will actually end up happening. And again, I'm going to go back to the COVID period. The months when you had the economy really opening up and a lot of migration coming back from the rural to the urban areas, that is when my experience anecdotally was that a lot of our staff and our household help, for instance, found that their rents were increased very rapidly in that period, repeatedly, because a lot of migrants were coming back from the rural to the urban areas.
So in a period like this, if you have this kind of rental reset which is underway, maybe because of a feedback loop from high food inflation to rents, et cetera, et cetera, it would probably be better to actually do the sampling every three months instead of sort of asking this question to a person who actually may not have any idea when the landlord may spring a surprise and actually end up upping the rent.
So maybe this is something that could have been done differently. On the GDP series, I'll offer you a few thoughts I have. I may be right, I may be wrong.
My sense is that levels will probably be higher. Growth will be higher in some years and lower in other years. So if you look at anything as a percentage of nominal GDP, it's probably going to look better like your fiscal deficit or your debt to GDP.
But obviously that works the reverse for things like revenue receipts to GDP and tax to GDP because those will look smaller if your nominal GDP goes up. So that's a bit of a double-edged sword in a sense. On the formal sector side, since we do already have a lot of information coming in for listed companies from the MCA21 database, maybe the change will not be very substantial.
But for the informal unlisted space, definitely the delta could be higher, which would lead to overall nominal GDP probably being higher in most years in the new series versus the old series.
Govindraj Ethiraj: Right. Aditi, it's been a pleasure. Thank you so much for joining me.
Aditi Nayar: Thank you.
Relief For Textiles
In what could be a relief to India's textile and apparel industry which was under pressure seemingly from the Bangladesh-United States trade deal earlier this week, Commerce Minister Piyush Goyal on Thursday indicated that the Indian textile sector may get similar zero-duty access to the US market like Bangladesh according to a report in the business standard. Now this is something that was mentioned to us by our guest Prabhu Damodaran of Text from Coimbatore where he pointed out that if Bangladesh could get zero-duty exposed to the United States by importing cotton from the United States then India too should at least theoretically be able to get the same benefit.
Now the report from Thursday says that though the fine print of the deal is awaited it's expected to be signed by the end of March and the ministry told industry leaders on Wednesday that India too would be exploring a similar arrangement as Bangladesh and that the industry has no reason to worry.
The Weight Loss Race
India's pharmaceutical industry is pulling up its socks for a race of the likes not seen for a while.
The race is linked to the imminent expiry of a patent-protecting semaglutide, a protein that mimics a hormone that tells your brain that you're not hungry and is also a key ingredient in Novo Nordisk's popular injectable weight loss drug Ozempic. Novo Nordisk's India patent will expire in March and a CNN report quotes analysts predicting a price war that could drive the cost of some weight loss drugs down by as much as 90 percent and possibly in other countries too. At least 10 Indian firms including Dr. Reddy's Laboratories, OneSource Speciality Pharma and Cipla have begun processes to manufacture semaglutide weight loss drugs according to that CNN report.
OneSource says it's investing about 100 million dollars as part of plans to ramp up production capacity by five times over the next 18 to 24 months. Biocon told CNN it has commissioned an injectables facility in Bangalore designed to serve both domestic and international markets with similar investments that's 100 million dollars and Dr. Reddy's told Reuters it plans to launch the generic version of semaglutide in 87 countries including India next year. I reached out to our frequent guest Sheetal Sapale of industry tracking firm PharmaRack and I asked her to walk us through the latest numbers for weight loss drugs in India which are of course shooting away and her outlook on the because of these potential patent shifts.
INTERVIEW TRANSCRIPT
Sheetal Sapale: So the GLP category actually it is picking up and it's more about the noise level on the social media as well as good acceptance from the doctors that has come up. Also these companies know as well as LILD they have partnered with Indian companies like Cipla and M-Cure with more brands and more noise level happening in the market. Also this set of products because of lot of social media influences there, there is a good amount of pull.
It's not that you know the doctors are pushing the drugs to the patients but the patients are proactively going to the doctors for having these drugs. So definitely you know it's an easy magic injection to reduce your weight. So the noise levels are there and the acceptance is there.
In fact if you see the market only the GLP-1 injections market, the market is close to 800 crores today. So it's a huge market and that's only two molecules, terzapatide and semaglutide. Only two molecules injectables it's a 800 crore market and that too within a very brief span of less than a year.
That itself talks about the popularity. So the market will keep on growing for some time. In the month of March once the generics are launched there will be a lot of price crashes that will be happening and the volumes would also increase significantly.
So typically what we have seen is once a generic comes into the market the price comes down to one-third to one-fifth and the volumes move up by 2x to 5x for the next four to five months. So this should definitely happen. So the next few months from March, April, May it should be more of the volumes gain that should be seen in the market.
So this market will definitely pick up this year but then as more number of patients start getting onboarded on these injections the side effects will start getting visible. Now even in the instructions or the pamphlets that come with these injections all the side effects are very clearly mentioned by all the manufacturers. There is a risk of you know different type of side effects.
In fact some types of cancer are also very common. But then people today would be more focussing on the weight loss. But as a huge chunk of the population start taking these injections then the side effects will start getting more visible.
And then probably doctors would also become careful in promoting or you know pushing this injection only to the patients who are eligible and who really need it. Today you know there is a class of people who takes this product for you know the cosmetic part. There is a family function, wedding for which I have to lose weight for some and then they discontinue.
So after a few months probably this phenomenon would subside.
Govindraj Ethiraj: Right and this is feedback that you're getting from doctors and the medical fraternity?
Sheetal Sapale: Yes because when we talk to some of the companies as well I mean this is just last week I was in a pharma company we were discussing about what they feel about this GLP-1 agonist. The company themselves said that we had to stop one of the injections. I would not name the brand but then given to two people within the office because within two months of taking it they actually started showing symptoms of pancreatitis.
So everybody can't tolerate these medications and you have to actually segment a patient for this medicine.
Govindraj Ethiraj: Right and what are the other trends you're seeing? You know I think the last time we spoke in December obviously that was peak winter or heading to peak winter and there was a lot of respiratory linked drug sales and are you still seeing that any other trends that you're picking up?
Sheetal Sapale: When it comes to what is growing in the market growing fast it is mainly the cardio-diabetic therapy because that is a chronic therapy which is definitely demand driven. It's not that it's price driven. Now it is a demand driven therapy but then there are other therapies which have picked up pretty well in this month as the nutritionist category, the neuro-CNS category.
Respiratory category has also shown a good growth around 10 percent but it is more because of the anti-asthma segment because you know winter is typically a season where asthma flares up and this year it is again accentuated with because of the pollution.
Govindraj Ethiraj: Right and when you say nutritional can you describe that a little more?
Sheetal Sapale: It's mostly the multivitamins category wherein you know once you start falling sick or you know if you start getting some sort of infections doctors usually prescribe an immunity booster just you know so that your immunity stays high. So multivitamins and which are again strengthened with zinc supplementation are usually given in this scenario.
Govindraj Ethiraj: Right just to close off that loop you talked about the genetics coming in in the category of weight loss so and that's happening because patents are expiring?
Sheetal Sapale: Mid-March semaglutide should be using patent whereas terzapatide the patent is active till 2036.
Govindraj Ethiraj: Right and what's the kind of price variation or difference do you think will happen once the patent goes off?
Sheetal Sapale: You know the companies as nobody has revealed but today ozempic is actually available at you know per dose price of close to 2200. So I'm sure all the generics would be coming at a price which is much below 2200 if they have to be you know giving that generics magic volumes magic then it has to be below that 2200 per dose.
Govindraj Ethiraj: Got it. Sheetal thank you so much for joining me.
Sheetal Sapale: Thank you so much.
The 100-Year Bond
Alphabet that's Google's parent has issued a 100-year sterling bond and everyone is talking about it. Analysts who spoke to CNBC said that the deal is reflective of the historical scale levels of debt now being raised in both public and private markets to finance AI expansion.
Alphabet said last week its cap expense is expected to hit 185 billion dollars this year. Analysts also said that Alphabet's rare 100-year sterling bond is the latest sign of late cycle exuberance in credit markets as tech hyperscalers ramp up borrowing to historic levels to fund vast data centre and AI infrastructure build outs according to that CNBC report. The century bond by the way is issued in sterling and is part of a broader multi-tranch multi-currency borrowing drive totalling about 20 billion dollars in this case for Google.
The offering spans maturities across dollars euros and sterling and includes a debut bond in swiss francs. Century bonds are rare points out the CNBC report and are more commonly associated with governments than corporate borrowers and demand typically comes from large institutional investors like pension funds and insurers seeking to match long-term liabilities. A 100-year bond is not new in India by the way.
Reliance Industries in 1997 had issued a 100-year external commercial borrowing bond or through bonds and received offers amounting to about 250 million dollars for a 100 million dollar bond issued in the U.S. market.
