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18:34
Ruchir Sharma on Why India Seems to Be on the Wrong Side of the AI Trade
Bloomberg Television
·
May 11, 2026
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Transcript
0:00
It does seem like there's so much
optimism stars are aligned, especially
0:03
with Trump saying, you know what, the
war is ending or, you know, we're done
0:07
with this.
We've had him say that about 49 times
0:10
since the war started.
Some say even like five times in the
0:13
last nine weeks.
Why should we care and do we care?
0:17
Not really, because I think that, yes,
we care if oil prices were to really go
0:22
parabolic.
But I think that the big story and
0:24
that's very clear even from the opening
remarks from your team, is that this is
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0:28
all about A.I., Right?
That's what's really driving markets
0:32
around the world.
If you look at even relative
0:34
performance, it's all about A.I..
So just stepping back a bit that
0:41
something similar happened last year,
which is that we were all obsessed with
0:45
that it's on the news front and yet that
it did go up.
0:49
But people forgot about that story
because it was superseded by the
0:54
amount of CapEx which is happening as
far as air is concerned.
0:57
Something similar is going on this year,
which is that, yes, oil prices have gone
1:01
up.
They have settled at a much higher
1:04
plateau even after the decline over the
last day or two.
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1:09
But the AI boom is just so much bigger
that it's swamping all other effects.
1:15
So it's very hard to look as to what
happened with the tariffs, which were
1:18
the negative, that
the average tariff rate in America today
1:23
is much higher than what it was.
Even though people talk about Trump
1:27
having walked back and stuff, which is
true, but it was two and a half percent.
1:30
The average tariff rate before Trump
started the escalation on the trade war.
1:36
And even after he pulled back, we
settled at about 10% or so, very
1:40
significantly higher from where we were.
And yet the markets and the economy
1:45
withstood all of that, mainly because of
the EIA boom.
1:48
Same thing is happening this year that
oil prices are higher, but because this
1:52
boom is so powerful, the companies just
keep increasing CapEx.
1:57
Everyone's convinced that the world is
moving towards is the future that that's
2:02
all that markets seem to care about.
Interesting.
2:04
You talk about parabolic and we have
seen parabolic moves before like gold,
2:10
silver and even oil to to some extent a
moment in time,
2:15
but never at this scale.
The question really is how long can this
2:18
last?
I mean, the momentum, the rally can't go
2:20
on forever.
What are the catalysts you're looking
2:23
at?
So like I framed this in like three
2:25
ways, really.
One, that if you look at history, the
2:28
last 300 years, every single
technological innovation has been
2:33
accompanied by a financial bubble, every
single know from the railroads to the
2:37
Internet, canals, whatever you look at
it, it's all been accompanied always by
2:43
a financial bubble.
Because when you have a great
2:45
technological breakthrough, it's
fantastic for the world.
2:48
That's what the world progress is on.
But it leads to a huge amount of over
2:52
excitement.
Companies invest and then they
2:56
overinvest.
And so that's how it goes on.
3:00
But there are two lessons to this.
One, that very rarely do these
3:04
companies, which are investing and are
making money on their investment because
3:08
they typically overinvest, it's the
consumer that ends up making money.
3:12
And the second most important thing is
this and we learned this in 300 years of
3:15
looking at bubbles, that the consistent
factor which pricks the bubbles is that
3:21
when you have higher interest rates
until you have high interest rates or
3:25
some sort of a liquidity event which
tightens
3:30
money in the market place, bubbles don't
just burst under their own weight.
3:35
So I think that's what that's the zone
we're currently in, that interest rates
3:39
are pretty stable across much of the
world.
3:41
I'm watching the ten year in the US
obsessively.
3:45
It's not, you know, in a any sort of a
major breakout, it's stuck between four
3:51
and four and a half percent.
Now.
3:53
The tenure in the US to get to 5% or
more, that's when I think that you would
3:58
begin to get people asking questions,
What's my return on investment?
4:01
How much are going to make out of all
this massive CapEx I'm spending?
4:05
Until then, this arms race goes on.
So, yes, this is a bubble.
4:10
When I look at the like, I have four
criteria to try and map out if we have a
4:15
bubble or not.
It deals with overvaluation over
4:19
investment, over leverage and over
ownership.
4:23
The falls that I call them
on most of these, for us, this is quite
4:28
advanced.
Now you can argue that we not that
4:30
leverage the balance sheet of these
companies which are in overinvesting
4:35
now.
They are still doing it out of the cash
4:37
flows.
The debt they're taking is still
4:39
relatively small, but apart from that,
we are overvalued.
4:44
On most metrics, we are overawed.
I mean, 60% of American households today
4:50
have exposure to the equity market for
the highest in the world.
4:54
Actually, it's the highest in the world.
And in fact, America is the only country
4:58
where people.
Have more of their wealth in the stock
5:03
market than it did even in the property
market, which includes their own homes,
5:07
typically in China or other places.
The it's the other way around.
5:10
People are five times more wealth in the
property market, in the stock market.
5:14
So this is a very extended bull market.
But having said that, as I said, that as
5:19
long as interest rates are low and
interest rates I see are low because
5:23
there are about three and a half
percent, 4%, what do we think of the
5:26
short interest rates?
But nominal GDP growth is much higher,
5:30
you know, like it's running at four or
5%.
5:32
Concentration risk.
You take a look at Korea and Taiwan, all
5:37
the massive rally has been pretty much
down to three stocks.
5:40
Exactly.
I mean, the risk has become structural.
5:43
No, absolutely.
I think that this is why looking at
5:45
indices has become very misleading now,
because, you know, the same few
5:50
companies are driving the index.
So you spoke about the emerging market
5:53
index.
In fact, the emerging market index today
5:56
is even more concentrated the than the
US index.
5:58
Remember, for years we have spoken about
how in the US, the S&P 500 is very
6:02
concentrated, dominated by these big
tech companies, almost like never
6:07
before.
In emerging markets, something very
6:09
similar has happened.
So you have this massive dislocation
6:12
take place that for this year, markets
like China, India, these are actually
6:17
down in dollar terms or, you know, like
India still down ten or per cent in
6:22
dollar terms.
And yet these Korea, Taiwan markets,
6:25
these are up anywhere between 70% for
Korea, 40% for Taiwan on a one year
6:30
basis, they've all doubled.
So so getting massive dispersion.
6:34
So as I said, the world has now become
about a monomaniacal focus on which
6:40
countries have which countries don't
have a place.
6:43
India doesn't have AI in India has been
tumbling.
6:47
And, you know, foreign investors,
foreign funds have been making exit.
6:51
What would change that?
Would it take an air bubble baths for
6:55
foreign investors to start pouring money
into India?
6:57
Yes, I think so.
I think that India has been perceived
6:59
that way, that it's become an anti I
play because the current phase of air we
7:04
are in is all about infrastructure build
out who's got the compute, who's got the
7:09
infrastructure to build all of that and
India never invested that much on that
7:14
front.
I mean, India, if you look at the amount
7:16
they spend on research and development
as a share of the economy, it's point 6%
7:22
or so.
There is this Korea, Taiwan type people.
7:25
They do, you know, four or 5%
of the GDP in in R&D.
7:33
Even China, the US is closer to 3%.
Right.
7:36
And those are very large economies.
So I think that that's been India's
7:41
so-called fault line.
Now, of course at a later stage when it
7:45
moves much more to adoption, then maybe
India has an opportunity of using AI to
7:51
try and improve its productivity and its
efficiency.
7:54
But currently the problem is that
countries like India are seen on the
7:58
wrong side of the trade for two reasons.
One, as you mentioned, that they don't
8:01
have this kind of, you know,
semiconductors or compute which the
8:05
entire world is chasing just now.
And the second and this may be a bit of
8:11
a myth, but at least that's the
perception, is that a lot of jobs seem
8:15
to be at risk because of the disruption
that India has in the software sector,
8:20
software, even the GCC sector.
So these kind of sectors, you know,
8:24
there's a job risk and there were 10 to
15 million people Indians employed in
8:27
this, and some of them tend to be
well-paying jobs in India.
8:30
And jobs has been a structural issue in
India.
8:33
So on both those fronts, India is seen
as a bit of a risk.
8:37
Now, at some point in time, valuations
will get attractive.
8:41
And the fact that India, you know, that
the nominal GDP is growing at 10% will
8:46
offer an attractive entry point.
But for now sentiment has become yeah,
8:51
that we and it's true not just of India,
it's true of some of the Southeast Asian
8:55
countries as well.
Like I was having a look at Philippines
8:57
the other day, you know, like no one
even talks about it.
9:00
But the Philippines market today on some
metrics is trading at the lowest
9:05
valuation since the East Asian financial
crisis.
9:08
Would you buy it then?
But I think that, you know, like the way
9:11
I'm thinking of the portfolio today is
this, if I can say so, that you think
9:15
about how much air you want in your
portfolio and then what are the cheap
9:19
hedges that you can have in the
portfolio, which is that these are
9:23
cheap.
They will not work just now, but let's
9:25
say this reverses that for some reason
interest rates go up or the bubble
9:29
bursts, you know, like what are the
things that could benefit?
9:33
So yeah, I think that the India
Philippines, you know, could be the kind
9:36
of places.
But in general, what I find is that the
9:39
best hedge to this currently is not even
gold at all, because what's happened to
9:43
gold is that gold used to be a good
hedge, but because it had such a peer we
9:47
rally, it's no longer become a risk free
asset.
9:51
There's a risk that embedded in that
price.
9:53
So yeah, gold will do okay.
But I think that the best quality stocks
9:56
in the world today are the best.
I do this because quality as a factor
10:02
has done quite poorly, particularly in
international markets, and the quality
10:07
would be good.
Companies with an artery of more than
10:09
15% some earnings growth, but they have
all done poorly because there's been
10:14
such a focus on just having a I and many
of the I please.
10:18
I mean, we speak about the Magnificent
Seven apart from that are in fact
10:21
unprofitable.
You talk about air place they used to
10:25
say is still the place to be.
And yet back in 2024, you called peak US
10:30
exceptionalism.
Yeah, that's not the case.
10:33
We're seeing record after record after
record.
10:35
Yeah, and we'll continue to test record.
I mean, so I'd written back in, as
10:40
you're seeing like in December of 2024
that US exceptionalism is peaking.
10:46
And what did I mean by that?
What I meant was that America had had a
10:49
50 year great run of stock market
performance.
10:53
But I was talking about relative the
fact that the American stock market
10:57
relative to the rest of the world was
likely to peak.
11:00
And when I look back at it, that has
happened that even though the American
11:03
market has continued to climb higher
since December 2024, in fact, when I
11:08
wrote that piece that you're talking
about, I think since then international
11:12
markets have outperformed the US.
You know, like despite all this money
11:16
flooding into America and there's
massive amount of money, flooding in the
11:20
dollar has, in fact in the margin
weakened,
11:23
it hasn't strengthened against most
currencies.
11:25
Now there are some
currencies like the rupee and the peso,
11:29
etc., which have clearly weakened
against the dollar.
11:33
Crumbled.
Fine, you can use the word somebody, but
11:36
generally currencies have done okay.
So international markets have
11:41
significantly outperformed the US since
December 2024.
11:45
And that's very interesting despite the
boom happening.
11:49
So now to the counterfactual that if I
boom and for some reason I think America
11:54
would be very vulnerable.
So the other follow up piece that I'd
11:57
written last year for my column was that
America has become now one big bet on
12:02
high that that and that's why even Trump
and is able to get away with so much you
12:08
know, like a lot of people here in
Singapore in other places are befuddled
12:11
that how does America get away with all
these, you know, actions that it takes?
12:17
And my point is, because America keeps
bailing out Trump or other policies
12:23
simply because of its preexisting
strengths and because of the AI boom
12:26
continuing.
That's why the other actions of America
12:30
are superseded by the AI boom.
You talked earlier about how you're
12:34
keeping a very close eye on ten year
yields, which you say it's not at 5%,
12:38
but when you take a look at 30 year
yields at 5% and expect it possibly to
12:43
go higher, isn't that sending alarm
bells?
12:47
Well, I wouldn't say alarm bells, but
it's sending like an orange signal.
12:51
It's telling you that this is what you
should be looking at.
12:53
As I said, 300 year history of bubbles,
higher interest rates is what kills
12:57
them.
So if you get higher interest rates, the
13:00
entire equation changes.
But, you know, this is still broadly, if
13:05
you look at it, it's been stuck in a
range for a while now.
13:08
Right.
So in terms of that, but I think that
13:10
the if interest rates go up, that's when
it tells you, hey, this boom is coming
13:15
to an end.
Now you can see that it's already very
13:18
advanced.
I don't want to be around these, you
13:20
know, like it like in this bubbly phase.
But there's a lot of performance
13:24
pressure that people are facing just
now, because if you look at even bubbles
13:27
historically, they typically you get the
best returns.
13:30
Typically at the end, even in 99 2000,
you know that a lot of people speak
13:35
about how Alan Greenspan in 1996 had
said this was irrational exuberance and
13:40
it took more than three years after that
for that to really manifest itself.
13:43
But we know from that statement the
Nasdaq went up multiple times.
13:48
But I think that a
detail which is often overlooked here is
13:53
that even in October of 1999, from then
to the peak, the Nasdaq doubled.
13:59
So, you know, the the the end when it
happens, the last phase of this, when
14:03
there's a scramble going on, the price
action tends to be the most parabolic.
14:08
And that's what we're seeing in some
markets like in Korea and these places,
14:12
you know, like now all of a sudden these
chip stocks, they they going up 10% a
14:16
day.
I'm talking about and we're talking
14:18
about really large caps chip stocks here
like Samsung High Index.
14:22
And still, you know, that's not normal
price action.
14:25
That tells you that this isn't a
parabolic stage.
14:28
But they said that until interest rates
come in, undercut this, it's very hot.
14:34
There's no science to see that it should
stop right here because these things
14:38
just tend to carry on with a momentum of
their own.
14:41
There's so much retail speculation going
on, not just in the US, even in Korea.
14:46
And then now you have, you know, like
pro-cyclical things going on that
14:50
American individual investors are now
being allowed access to buy Korean
14:56
equities as well.
So it just.
14:59
Fuse this further, We're sure.
I'm just wondering again, the current
15:03
geopolitical landscape, how are you
pricing that into your investment
15:07
theory?
Because if you take a look at what's
15:09
happened, you know, amid this Iran war,
the U.S.
15:12
has had to move all its weaponry from
Asia to the Middle East.
15:16
And now we're talking about a shortage
of weaponry.
15:19
In fact, the U.S.
has told the E.U.
15:21
that perhaps, you know, all the
transfers of weaponry may have to be
15:25
delayed.
Inventories are really low.
15:29
That's a huge risk for the world, isn't
it?
15:31
Yeah, but, you know, like
markets are very bad at pricing these
15:35
kind of risks.
And that's because of the fact that, in
15:40
all fairness, because 99% of the time
these risks never materialize.
15:44
There are always geopolitical risks out
there in the 1% probability that they
15:49
materialized, like, you know, like the
First World War or something as grave as
15:54
that.
The markets are blindsided by that.
15:57
So that's the problem that, as I said,
more than 90% of the time you have
16:01
geopolitical risks and they don't quite
materialize.
16:04
And you know, like there's a line with I
always repeat that history is better
16:09
remembered than it's lived, that we now
look back and think that this is a very
16:13
geopolitically fraught time.
But at any point in time,
16:18
geopolitics always seems that way
because there's always some risk there,
16:22
even in the best of times.
Know the people.
16:25
Year before, I think we were born in the
1960s speak about, you know, like the
16:29
fact that there were all sorts of fears
that us and Russia, the Soviet Union at
16:35
that point in time would have a nuclear
war.
16:37
And you had all these exercises of
people hiding under desks and stuff in
16:41
like America.
Similarly, in the best of times of the
16:44
early 1990s, the peace dividend coming
through, there was a real fear and
16:48
Margaret Thatcher and all would speak
about that, that the Soviet Union as a
16:52
last gasp to stay in in power and to
stay united would launch a nuclear
16:58
attack you know like to try and assert
its authority.
17:02
So and that was remember now we look
back at the 1990, there's a golden
17:06
period about, you know, geopolitical
stability.
17:08
So my point is that geopolitics is
always volatile.
17:11
Yes, it seems it's a bit more volatile
now.
17:14
Could be the last 20 to 30 years, but
the markets are very clear, which is
17:18
that you do like the fear, geopolitical
risk.
17:21
And in the 1% chance that something
really disastrous happens, they're
17:25
always, you know, shocked by it.
How do you think this will play out for
17:29
the midterms?
I mean, Cam Griffin did say that, you
17:31
know what, the Democrats are going to
win.
17:33
Yeah, well, if you look, you know,
here's the problem with the strike,
17:36
which is that, yes, I think that there's
an overwhelming consensus that the House
17:40
will flip on that.
You know, you know, like I think that
17:43
everyone has sort of decided the Senate
is still 5050.
17:47
And here's the problem in the in the
polling numbers that everyone looks at
17:51
Trump's polling numbers and they are
relatively low.
17:53
But the two
points I'll make here, one that every
17:57
American presidents polling numbers for
the last 50, 60 years have been
18:02
declining.
So comparing it to history has become
18:05
fraught because in a more polarized
world, all numbers are declining.
18:08
And the second point I'll make here is
that the if you look at the generic
18:13
ballot, the Democrats and their polling
numbers are, in fact, lower than
18:18
Trump's.
So be it.
18:21
It's about who you're fighting out.
So that's another reason why Trump is
18:26
able to get away, because a lot of
people in America are also very
18:30
disillusioned with what the Democrat
Party is doing.
— end of transcript —
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