- Indian markets showed resilience despite geopolitical tensions over the Strait of Hormuz
- US and Iran both claim to be Guardians of Hormuz, complicating oil supply security
- Indian IT sector sees double-digit AI revenue growth and strong employee additions
Last week on this newsletter, I wrote about how the worst is perhaps over for Indian markets as far as reacting to geopolitical headwinds is concerned. This week has borne out that thesis. While markets shuddered at the prospect of a 20% "protection fee" that US President Trump wants to impose on the Strait of Hormuz, the recovery was just as quick. Even as Brent has climbed back to the $85 a barrel mark, equity investors have shown resilience. Having said that, things could go horribly wrong if the fight for control over the Strait of Hormuz escalates into violence.
This week, the world saw two claimants to the position of "Guardian of Hormuz". It started with Trump claiming that the US would henceforth be known as Guardians of Hormuz, followed by a quick retort from the Iranians, who said they had always been the Guardians of Hormuz. This unsolicited guardianship could turn out to be the next big headache for nations dependent on the Strait for their oil supplies, because clearly this protection does not come free. India, for now, is watching and waiting.
Time To Make A Decision On The Future Of Indian IT Companies
If there is one sector that has left even the most astute investors confused, it is Indian IT. Views have varied widely, from enthusiasts who see mouth-watering valuations to those who have written off growth for a sector that has gone from being the pride of Indian innovation to a glaring example of how quickly a business model can turn redundant in the gale force of AI. The results so far are largely encouraging.
TCS, the largest of them all, has shown double-digit growth in AI revenue for the last three quarters. What is even more heartening is that net employee addition is the highest in 15 quarters for the behemoth. Other players are also ramping up AI visibility even as the AI trade is being questioned from the Kospi to the Nasdaq.
FIIs Are Coming Back, Slowly But Carefully
The biggest lament of the Indian markets has been the exodus of foreign investors. The story has changed in July. While foreign institutional investors are still selling, the flood has turned into a trickle. FIIs sold over Rs 1.2 lakh crore in Indian equities in March this year. For the first 14 days of July, there was actually a net positive figure of Rs 500 crore. This, however, is more because of what is happening in Korea than in India.
Chris Wood, in his Greed and Fear note, says the main driver of foreign selling has had nothing to do with India and everything to do with Korea's surging weighting in the MSCI Emerging Market Index. Korea's weighting has risen from 9% to nearly 24% since the start of last year. Chris Wood, however, argues that for foreigners to return in size, they need to believe the AI trade has peaked, or see much lower valuations. As long as the Indian investor continues to repose her faith in equities, that is unlikely to happen.
Strange But True!
The most baffling report for me this week was a plan by Trump Media's interim CEO, Kevin McGurn, to charge for faster access to premier Truth Social accounts. Truth Social is where Donald Trump posts his views first, and first access to this market-moving information is now on sale. If this does go through, it will be unprecedented for a sitting US president's view to be sold first to the highest bidder.
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