According to DBS Bank, AI and expensive energy are influencing the Indian market. Companies adopting AI will be successful, but the traditional IT sector is under pressure. The bank has reduced India’s rating to ‘neutral’ due to weak business sentiment.
New Delhi [भारत]June 30 (ANI): Indian companies that successfully turn to Artificial Intelligence (AI) enabled services and productivity solutions may emerge winners in the long term. This comes at a time when the domestic stock market is undergoing a transformation driven by the twin disruptions of Artificial Intelligence and increased energy prices.
Addressing an Investment Outlook media briefing webinar, DBS Bank said that even as India remains one of the fastest growing large economies in the world, these structural forces are reshaping corporate earnings expectations, market valuations and leadership of sectors in the domestic market.
DBS Bank bet on AI
“We are deeply focused on AI-related investments,” said Hou Wei Fook, chief investment officer of DBS Bank, highlighting the bank’s continued confidence in AI-driven investment opportunities despite increasing concentration in the market. The changing environment has already prompted adjustments in the market, confirming DBS Bank’s downgrade of India to ‘neutral’ stance, as businesses report continued weakness in sentiment.
The momentum seen in the broader Asian region has not affected India to a large extent. “India and Indonesia have been insulated from the region’s uptrend. In both cases, businesses are reporting persistent weakness in sentiment,” the bank said.
Impact of AI on IT sector
The impact of Artificial Intelligence is most visible in India’s large technology services and outsourcing sector, which has historically been a major contributor to exports, employment and equity market performance. According to the webinar, Generative AI is increasingly automating coding, customer support and back-office processes, directly challenging the traditional labor arbitrage model adopted by major Indian IT companies. The disruption has already resulted in earnings declines and increased volatility in technology stocks as investors reevaluate long-term growth prospects.
At the same time, the AI transition is creating new investment opportunities in cloud infrastructure, data centers, semiconductors, cybersecurity, and digital platforms.
Energy prices and other challenges
At the same time, rising energy prices are posing macroeconomic challenges for India, where crude imports account for about 90 percent of domestic demand. Higher crude oil prices are weighing on inflation, widening the current account deficit and squeezing margins in transportation, manufacturing, aviation and consumer-facing sectors.
The DBS Bank official also pointed to opportunities emerging from the evolving energy landscape, saying, “We see diverse opportunities across other themes, particularly energy,” as growing electricity demand is expected to be supported by energy security needs and continued AI-related capital spending.
Weak rupee and geopolitical tension
Adding to the energy challenge, the Indian rupee recently weakened to historic lows against the US dollar. DBS Bank noted that India faces specific disadvantages in the current geopolitical and business environment. “With 15% of its exports to the Middle East, the uncertainty surrounding the Strait of Hormuz presents a major hurdle for Indian exporters. Its lack of participation in the region’s broader electronics supply chain further limits prospects,” the bank said. It further said that “in the face of energy disruption, India is particularly vulnerable due to its high energy intensity.”
Ray of hope despite challenges
Despite these near-term headwinds, DBS Bank said India’s structural strengths continue to support domestic demand through public infrastructure spending, manufacturing stimulus and ongoing digitalisation. The financial, industrial, defence, utility and renewable energy sectors are expected to benefit from capital expenditure and energy transition policies, while widespread AI adoption could improve long-term productivity in sectors such as banking, healthcare and telecommunications.
As a result, investors are likely to see greater divergence across sectors, with traditional IT outsourcing models facing prolonged disruption, while capital is increasingly shifting towards companies that are best positioned to benefit from AI infrastructure, domestic capital expenditure and productivity-enhancing technologies. (ANI)(Except for the headline, this story has not been edited by Asianetnews Editorial staff and is published from a syndicated feed.)