Beyond The AI Hype: Health Tech To Auto Comps — Why Is Rushabh Sheth Pivoting Toward Tactical Bets?

Indian equity markets are navigating a structural transition marked by cautious capital allocation, subdued corporate earnings, and escalating technological disruption. Speaking on the evolving market dynamics to NDTV Profit on Tuesday, Rushabh Sheth, Co-Founder & Co-CIO at Karma Capital, delivered a candid assessment of the domestic landscape, warning that India has largely "missed the bus on AI" while highlighting where institutional capital can still uncover durable opportunities.

According to Sheth, a palpable sense of apprehension is creeping into investor circles. The primary catalyst is a disconnect between elevated equity valuations and the reality of corporate performance: aggregate earnings growth across Indian Inc. has remained tepid over the past few years. Without robust, broad-based earnings acceleration to support high multiples, the broader market is turning distinctly tactical, placing far less emphasis on unbridled long-term growth stories.

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AI Deficit: Tech Disruption Upends Long-Term Valuations

Sheth struck a cautious yet pragmatic tone regarding the current market environment, noting an emerging sense of investor apprehension as corporate earnings growth remains subdued. Notably, a central pillar of Sheth's market outlook is the accelerating pace of global technological disruption and its cascading consequences on corporate valuations.

According to Sheth, the accelerated pace of global technological innovation — led primarily by advancements in AI — is redrawing industry dynamics faster than many expected. In this race, he argued, India finds itself lagging on core technological breakthroughs. "India has missed the bus on AI," Sheth observed, pointing out that technology disruption is compounding at a rapid pace and challenging the long-term sustainability of established business models.

While global markets-predominantly the US — have built deep moats in foundational artificial intelligence models, computing infrastructure, and core intellectual property, Sheth noted that the domestic ecosystem remains skewed toward application layers and traditional IT services rather than foundational breakthroughs, leaving a wide gap on the global frontier.

He warned that the "terminal value" across multiple sectors is coming under severe pressure, as businesses failing to adapt declining cash flows in their outer forecast years. In discounted cash flow models, this represents the bulk of a firm's net worth. When tech obsolescence shortens business lifecycles or erodes competitive moats, hopes around indefinite cash generation unravel. This forces investors to recalibrate target multiples downward in sectors exposed to digital replacement.

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Amid the long-term value risk, the broader market landscape has shifted toward tactical positioning rather than chasing pure structural growth. Sheth pointed out that broader corporate earnings growth has remained relatively tepid over the past few years, failing to provide the robust fundamental cushion that aggressive equity valuations typically require.

This divergence between market expectations and ground-level earnings momentum has left investors noticeably cautious. “You can see a bit of apprehension from investors,” Sheth remarked, adding that market participants are increasingly focused on short-to-medium-term opportunities rather than committing patient capital to traditional multi-year growth narratives.

Despite the overarching caution, Sheth said that significant value is emerging in targeted segments where innovation meets large and addressable end-markets. These sectors show structural tailwinds and deep domestic moats even amid the macroeconomic headwinds and technological challenges, Sheth emphasized that capital is finding productive homes by pivoting toward these sectors

While macro tech narratives like AI may present hurdles for Indian players, innovations are flourishing in specialized, niche pockets. Sheth singled out health-tech as an especially compelling emerging sector, uniquely positioned to ride structural modernization, data integration, and localized clinical demand. Niche sectors are new opportunities of growth, he said.

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He underscored the robust underlying runway for traditional healthcare and the auto components sector, both of which benefit from massive domestic scale and integrated global supply chains. According to Sheth, identifying companies with defensible moats within these expansive markets will remain central to outperforming a market transitioning through technological upheaval.

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