Why Markets Are Seeing A Shift In Temperatures
A furious debate has raged over whether the latest generative AI tools mark a extinction event for India's IT industry
On Episode 801 of The Core Report, financial journalist Govindraj Ethiraj talks to Chokkalingam G, Founder of Equinomics Research Pvt Ltd. We also feature an excerpt from Nandan Nilekani’s recent presentation at Infosys AI Day.
SHOW NOTES
(00:00) The Take
(04:50) Brokerages take note of earnings, recent developments to turn optimistic on markets.
(07:17) Why markets are seeing a shift in temperatures
(13:32) Infosys bowls a Googly with Anthropic tie-up, argues for importance of IT Services businesses.
(24:23) India is looking at $200 billion AI investments.
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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 Wednesday, the 18th of February, and this is Govindraj Ethiraj, broadcasting and streaming weekdays from Mumbai, India's financial capital,
The Take
French President Emmanuel Macron was spotted jogging along Mumbai's Marine Drive on Tuesday morning, cutting us near a solitary figure against the backdrop of the Arabian Sea. There is perhaps some wisdom in a prominent head of state pacing himself, focussing on acclimatisation rather than speed.
It's a lesson that global markets and the doom-mongers predicting the immediate evaporation of India's IT services sector might do well to heed. For the past week, a furious debate has raged over whether the latest generative AI tools mark the extinction event for the outsourcing giants that have built modern India's IT industry. But just as the markets began to stop hyperventilating, Infosys led a smart counteroffensive by announcing a partnership with Anthropic, the giant killer of the LLM world, and Infosys signalled that it intends to be the jockey and not the horse in this new race.
Chairman Nandan Nellikini's presentation at Infosys AI Day 2026 on Tuesday offered the intellectual ballast for this strategy. His thesis is sharp. Huge enterprises currently sink 60 to 80% of their IT budgets merely in keeping the lights on or maintenance, and this technical debt can no longer be deferred.
His argument is that AI flips the script on the build versus buy dynamic because AI has democratised and simplified coding. The advantage is shifting back towards building custom solutions over buying rigid, off-the-shelf software. If the future is bespoke, then the world still needs tailors, and Infosys argues it is that tailor.
The Anthropic partnership actually hits the right notes because it acknowledges a fundamental reality that to use AI smartly, perhaps you still need humans in the loop. But do you need armies of them writing basic code? Perhaps not, but the sector isn't getting wiped out. It's just getting promoted to a higher value chain.
To misquote Vladimir Lenin, there are weeks where decades happen, and the last week in the AI sector felt like a decade, but the IT majors may have survived the initial shockwave. However, while the corporate boardrooms in Bangalore are rapidly adapting, the state machinery in New Delhi provided a somewhat jarring counter-narrative. The India AI Impact Summit in the capital exposed the widening chasm between India's digital aspirations and its physical capacity.
When bureaucratic legacy collides with youthful aspiration, the results are not good. In Delhi, this manifested as thousands of young tech enthusiasts stewed in long lines to enter the Bharat Mandapam, or the former Pragati Maidan complex, complaining of mismanagement. In a twist of irony that would be funny if it weren't so damaging, attendees at a summit celebrating India's digital prowess were reportedly forced to pay cash at various places, including for food, apart from poor Wi-Fi connectivity.
Several founders expressed their frustrations in embarrassing detail on X. Union Information Technology Minister Ashwini Vaishnav on Tuesday apologised for those widespread disruptions on the first day of the India AI Impact Summit. But one culprit behind the frustrations, as always, was the VIP culture that plagues Indian logistics. The entire event management apparatus appeared to pivot towards servicing a single visiting dignitary, leaving thousands of young delegates, the actual future of the country, stranded outside.
Now, the juxtaposition is stark. On one hand, there were high-level policy sessions discussing deep tech funding, healthcare, AI, and sovereign models, apart from others, discussions that were genuinely insightful and necessary. But on the other, there were logistical failures that suggest India lacks the soft infrastructure to host the very global audience it seeks to lead.
Delhi possesses the best convention infrastructure there is in the country, but even the capital has its limits. Mixing policy wonks with a massive product exhibition crowd at the scale was a tactical error, but the strategic failure lies in the state's inability to match the seamlessness of its digital payments with the seamlessness of its queues. Nilikani spoke about modernising legacy systems in software.
The challenges at the India AI Summit suggest the government needs to modernise its legacy systems of event management and VIP protocol. India remains a paradox, capable of partnering with the world's most advanced AI labs, but struggling to get people through a door. Like macaron on Marine Drive, the Indian tech story is a long run, but you can't finish the marathon if you trip over your own shoelaces at the starting line.
And that brings us to the top stories.
Brokerages take note of earnings, recent developments to turn optimistic on markets.
Why markets are seeing a shift in temperatures.
Infosys bowls a googly with anthropic tie-up, argues for importance of IT services businesses.
And India is looking at $200 billion of AI investments.
Markets
Well, it's going to be a lot of tech and AI today, but four brokerages have said that Indian equities may be nearing a turning point in earnings growth and market performance as profits stabilise, valuations ease, and trade talks with the United States and European Union advance, according to a Reuters report, which said that for the third quarter ended December 31st, Nifty 50 companies posted a 7.5% year-on-year profit growth up from 1.9% in the previous quarter.
Growth was broader across the market with BSE 500 companies reporting a 16% profit growth led by energy and consumer discretionary companies. Even so, Nifty profit after-tax growth stayed in single digits for the seventh state quarter, according to a Reuters report. Brokerage MK Global said headline earnings growth would have been closer to 14% after adjusting for the labour court impact.
Other brokerages, including JP Morgan and Motilal Oswal, flagged early signs of a recovery in consumption and said an interim framework for an India-US deal could mark a turning point for markets. Valuations have moderated after underperformance while supportive fiscal and monetary policy, signs of consumption revival and progress in those stocks have improved the forward earnings outlook, according to them. More specifically, strong festive and rural demand, stable interstate environment, a pickup in credit growth and lower input costs have driven a broad-based earnings recovery.
Motilal Oswal said five Nifty 50 stocks, that State Bank of India, Tata Steel, HDFC Bank, Tata Consultancy Services and Bharti Airtel accounted for 78% of incremental earnings growth. The analyst also cautioned that AI-led disruption in IT services and spillover risks to other sectors remained a key overhang and also pointed out that the Nifty 50 and Basie Sensex have risen about 9 and 7% since the start of this year, but they've lagged Asian and broader emerging market peers. Meanwhile, the benchmark indices were higher for the second straight session on Tuesday, thanks to public sector banks and IT stocks, which like we've said, is in a recovery mode right now.
At close, the Sensex was up 173 points to 83,450 and the Nifty 50 was up 42 points to 25,725. Gold prices were down though, about 2% on Tuesday, as there were holidays also in major markets which affected liquidity. There have been reports of considerable speculative buying coming in on gold from China and more on that perhaps tomorrow.
Spot gold was down to about $4,917 per ounce on Tuesday morning and that of course is its lowest level in more than a week. So is there a shift in temperatures in the market? I reached out to G. Chokhalingam, founder of Equinomics Research and I began by asking him how he was seeing the shift in mode and of course, whether it would last and within the markets, what were the specific areas of optimism?
INTERVIEW TRANSCRIPT
Chokkalingam G: Definitely very optimistic. For last 18 months, I was a little nervous about small and mid-cap and they were beaten down a lot. I was not that much confident because IPO boom took away a lot of liquidity.
Otherwise, that would have come to secondary market. So now, two things have happened which are giving strong confidence and triggers to the market. One, all of us know the US trade war moderated, rates are cut.
And of course, there are here and some challenges are there. But one thing is very clear, Mr. Trump is not going to go back to the 50%, 500%. That confidence has come to market.
And therefore, rupee stopped falling badly. And hence, FII money also will start coming in. At least they will not sell in a big way, so which is very visible.
Nearly 20,000 crore invested in the February month itself. The second trigger, which is more important particularly for broader markets, small and mid-cap is the lack of liquidity. The IPOs have taken away 2 lakh crore, promoters have sold for 2 lakh crore.
So now what has happened? The boom has started fizzling out in IPO market. From October onwards till January, the money mobilised through IPO is going down.
And of late, many stocks are even listing below offer price. And in fact, in the last six months, 57% of the IPO stocks, they are trading below their offer prices. That's good for the secondary market.
So because this is what happened in the last 30 years, the secondary market boom led to primary market boom, which in turn led to crash in these small and mid-cap stocks in the secondary market because of the liquidity. And eventually, the secondary market took off and primary market had a difficulty. This is based on logic.
That is, beyond a point, the listed stocks in the secondary market become more appealing than the primary market and attraction shifts to secondary market from primary market. That is what exactly happened in the last few weeks. Also, it got the trigger from the US trade war resolution.
So therefore, I firmly believe there could be volatility, but at best till March end only. So till March end, it will be a very good buying range. There are a lot of triggers apart from growth, good monsoon, good water storage, another record year of food grain production, banking credit growth has come strong now at around 14%, which was around 11%.
The FDI commitment fagging up 2025 was to the tune of 135 billion dollars. So a lot of good things are happening. So I believe the worst is going behind us.
Govindraj Ethiraj: Right. Okay. So on the market side, we've also obviously seen huge flows into gold and silver.
And we saw via mutual funds, we saw a fall in equity mutual fund investments and a rise in gold ETFs. I mean, gold ETFs overtook last month. How are you seeing that trend going ahead?
Chokkalingam G: So before explaining this trend, one has to understand post-COVID pandemic, what is happening, you know, the investor base has nearly tripled in India. And that is a case across the world. So a lot of young generation has come to market.
And in my understanding, a lot of young people want to make quick money and they're willing to take risks and they're willing to jump in any momentum driven rally in any asset class. So we saw crypto, then we saw AI stocks in the US particularly. And then we saw, you know, rally in gold and then silver, then extending to copper.
So this is going to be the order of the day, at least for another one or two, three years. So from that perspective, you know, the gold also rallied, silver also rallied, but kind of crash we saw in silver that again given jitters, similarly in crypto also. So these things are now favourable to equity market because people understood the risk is quite high if you keep chasing without any limit.
So I believe both precious metals, they have played out in a big way as against a 6% long term average, gold has doubled in a year's time. So silver in India, it's more than tripled. So now that kind of rally is over, I believe firmly that it is going to be sideways or at best, maybe poor single digit return it can give from here.
So compared to all this, the equity, particularly small and mid cap in India becomes very attractive because many stocks, almost 7 out of 10 stocks are down from their peak level in 24 September. And many stocks are down anywhere from 15 to even 60% from 2024 September record high level. So that's a great attraction.
So I think this is a time for a small and mid cap, particularly in coming financial year. Right. Any themes within that, that you're focused on?
I would still play a little safe on, you know, the domestic demand driven, and also you need to understand where all AI can disrupt. So that would obviously mean themes like hospitals, PSU banks. These are the two examples on which I am very confident.
Govindraj Ethiraj: Okay. So you're saying banks and hospitals as opposed to industries where AI could disrupt?
Chokkalingam G: There are many more. So you ought to be very, very careful. You know, today we saw in this conference, how, you know, the AI can help people, you know, without really physically trying to wear the dress, you know, the AI can help.
So obviously one has to, you know, think deep and what kind of business can be affected. You know, the companies which are earning a lot of money through malls may be affected. There may not be need for lavish malls to sell readymade garments.
So this is the beginning of the disruption. Right now, too early to understand the implication fully, but certainly try to understand where all the disruption can come, which are the themes it can come, avoid those themes. So that is why I believe, you know, you have to have a hospital, you can't do away with it.
You know, the banks, AI can only reduce the cost, it cannot replace the bank. So this is how I started thinking and trying to take a shelter under safe themes.
Govindraj Ethiraj: Got it. Chokka, thank you so much for joining me.
AI and IT services
Infosys, which is India's second largest software services company said on Tuesday that AI services, that's artificial intelligence accounted for 5.5% of its revenue in the December quarter, which is also the first time it's broken down its AI business, according to Reuters, which pointed out that this disclosure comes as India's $283 billion IT industry faces rising concerns about AI's potential to disrupt traditional labour intensive outsourcing models.
Infosys CEO Salil Parekh said that it's growing at a robust pace, it's extremely dynamic and working well with our clients and he also added that their AI offerings include autonomous agents and embedded systems for physical devices and hardware. He also had said earlier that Infosys was working on about 4,600 AI projects and has built more than 500 agents. More significantly, Infosys share price jumped on Tuesday after it announced a strategic partnership with Anthropic and AI Safety and Research Organisation to create and implement advanced enterprise AI solutions for businesses in telecom, financial services, manufacturing and software development.
It's also establishing a dedicated Anthropic Centre of Excellence, focussing on the development and deployment of AI agents customised for specific industry operations. Now, this obviously comes as an interesting surprise, given that Infosys is tying up with a company that many speculated or maybe continue to speculate that will actually put it out of business. Infosys Chairman Nandan Nilekani made a rare presentation as Infosys Chairman, which sort of built up a case for companies like Infosys benefiting from the latest AI wave at a Infosys AI Day that was on Tuesday.
And this is what he said.
TRANSCRIPT
Nandan Nilekani: Now, one clear learning we have is modernisation of legacy systems cannot be deferred anymore. What happened over the last 60-70 years is people would not replace the legacy system, they just added to it. So, if you go and look under the hood of a large enterprise, they will have mainframes from 1960, they'll have minicomputers from 1980, they'll have from 2000, they'll have all kinds of things, and all coexisting in silos.
That is over. If you really want a firm to take advantage of AI, you have to fundamentally clean this up. So, this is a massive, massive cleanup job which everybody is dealing with.
There are reasons for that. One is the financial drain. Many large companies are spending 60-80% of their IT spend on maintaining systems.
There's no business value out of that. They want to go from 60% or 70% maintenance and 30% new systems to 30% or 40% maintenance and 60-70% new systems. They want to flip the way they spend money, but they can't do that with that fundamental cleanup they need.
Moreover, many of these systems were designed in an era before you could have online attacks and so on. So, security breaches which you see every day are just going up everywhere, and there are more state and non-state actors who are getting better at it using AI. So, security is a huge problem for everyone.
We have seen so many cases in the last few months. And because the data is all in silos, you can't even innovate fast. So, there are fundamental structural issues today we have.
So, the demand side is absolutely demanding modernisation. But the good news is for the first time, because of AI, we have the tools now to do modernisation fast and very quickly and in a much more economic way. So, we have a huge demand, and we have the ability now to do it, and perhaps our team will talk about that.
So, fundamentally, accumulated tech debt over decades must be paid. You no longer have the option to defer this. And this is a huge, huge requirement.
And obviously, it's a huge opportunity for us. Now, the other thing which is there is as AI becomes a bigger part of the spend, the balance of advantage is moving towards build rather than buy. And that is actually what is, if you see some of the concerns about what will happen to SaaS companies and all that, it's because of this, that building applications has become so simple that very often you may just build or you may replace something that you have, which you bought, with something to be built.
That, again, actually benefits folks like us because about building, we want to build it for them. It's going to be us only who will build it for them. So, fundamentally, it's good for us.
And the other thing which is there is that our view is that foundational systems will increasingly become systems of record, but the interface will be agentic, because agentic interface makes a lot of sense. Agentic interface allows people to produce something which is designed pro-consumer or pro-user. And agentic interface enables you to take out the complexity and hide it behind the agent.
So, the agent is simple to use. It's a very simple idea. Now, enterprises will therefore want to put agentic layers on top of all their applications, even if they leave the system of record the same.
And that is something which will be a combination of bought out agents as well as building their own agents, because finally, the agents have to be composable in a customer journey which is seamless, which is a mix of agents which are your own or from somebody else. Again, that requires orchestration and work which somebody has to do. So, there's a huge amount of work required once they go towards build rather than buy.
Now, the other thing is the pace of change is something which obviously we have not seen. We all know about the trillions of dollars being spent and all that. But even the technological change, I mean, you know, 2023 foundation frontier model had 100 billion parameters.
Today, it has 1 trillion parameters. There are only 10 to 12 agent networks. There are 60 agent networks.
So, this is only going to go up. In the US alone, there are at least five frontier models. In China, there are big four or big five.
So, this is only going to go up. In India, we have seen so much action and you'll see some big announcement this week on Indian-based sovereign models. Now, there are certain implications of this because if I'm a businessman and I have to choose my technology, how do I make sure I don't make the wrong choice? Because something which I invest in today may have fallen behind tomorrow.
Already, people are facing this reality. And therefore, how do you architect your technology so that you can deal with this rapid change is a very fundamental and structural need for enterprises. And again, they need help on that from somebody who has done this in 2,000 locations and understands the pros and cons of every approach.
But the main thing is that the technology is far ahead of its deployment. Because of this race and spending billions and some AGI and all that, the technology is moving faster than the ability of enterprises to deploy it. If you look at this chart, you can see that the model performance is going up, but the progress in implementing is not really.
Because implementing this is hard stuff. Fundamentally, it's about organisational change, business change, retraining your people, thinking about non-deterministic approaches, changing your data so it's no longer in silos. So fundamentally, we have a situation where there's a deployment gap between the power of the technology and the capacity of businesses to use this.
So if you guys think that some better product has come, nothing is going to happen. Because the problem is here, not there. You get it? It's about how fast companies can implement.
So you have to look at that. We call this the deployment gap. But this is actually a concept by Professor Clayton Christensen at Harvard 25 years back.
He called it technology overshoot, where technology gets ahead of the need. And in fact, he argues that that's how newcomers come because newcomers can then launch new products that are not as sophisticated, but good enough for customers. And Satya in his recent blog talked about model overhang, which is the same idea.
Fundamentally, the tech will keep getting better and better because billions are going to be poured into it. There's massive competition, but enterprise deployment is not going to go up. And this deployment gap is what we can help to address.
So again, it's a very important point. Now, I think talent transformation is huge. It's not that you will need talent, but it'll go from QA testing or development.
We have all kinds of new roles, AI engineers, forward deployment engineers, AI leads, forensic analysts, data analysts. So fundamentally, the challenge will be, how do you take your workforce and make sure that they are re-skilled and ready for the new business? And that's really the challenge that all the firms will face. So there will be roles.
Now, the way you hire will change, the way you train will change, the way you deploy will change. All that is going to happen. And I think we'll have sessions on that.
But fundamentally, there will be a need for people, but they'll be doing different things. Also, a lot of the talk of productivity is Greenfield. Writing Greenfield is not a big deal.
I can take a tool and give it to a kid and he'll generate a million lines of code. But that's not the real world. The real world is the fact that companies have trillions of dollars invested in their systems.
They have technical debt. They have data silos. They don't have documents.
Somebody was telling me the other day that there are some old systems and on contract, they have guys as old as me, 70, 75-year-old guys, because nobody else knows what the hell is going on. And when there's a crisis to be sorted out, they're pulled in from Phoenix or Florida or wherever they are and they have to solve the problem and nobody else knows how to solve it. So we have that kind of situation out there, undocumented dependencies.
So taking brownfield systems and modernising them is a hell of a lot more difficult than doing Greenfield development. And a lot of us get biassed because all the guys who talk about productivity are talking about Greenfield development. Also, AI implementation requires laser focus.
The very fact that you can generate stuff means you can generate slop. In fact, five years from now, there'll be more AI legacy systems than any other legacy system. All kinds of stuff will have been generated.
We'll have to clean that up also. And if an organisation is not, you can have fake productivity. Let's say there are two guys and they are having a fight.
One guy will draft an email, which will be one paragraph. He will give it to AI to make it into a 10-paragraph email because he wants to impress the other guy. The other guy will take the 10-paragraph email and summarise it to one paragraph.
So both have used AI, but what have we achieved? Nothing. So how do we make sure AI is used? And therefore, you need usage guidelines.
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AI Investments
India could attract more than $200 billion in investment commitments over the next two years across the five layers of artificial intelligence stack, according to the Union IT Minister Ashwini Vaishnav on Tuesday. He said that there is strong global interest, not just in AI growth, but also ensuring its responsible use.
He said that investments are coming across all parts of the ecosystem, from infrastructure to energy, and that India had a key advantage because of its clean power capacity, about 51% of energy of power generation capacities from clean sources. And that is one big advantage that India has, he said, even as he apologised for the widespread disruptions on the first day of the India AI Impact Summit 2026 happening in Delhi. Elsewhere, Adani Enterprises said on Tuesday, the group will invest $100 billion to build renewable energy powered AI ready data centres by 2035.
And that investment is expected to spur an additional $150 billion in spending over the next decade across related industries, including sovereign cloud platforms and server manufacturing, according to the company. And it also said it'll create a $250 billion AI infrastructure ecosystem in the next decade.
