The current AI wave is likely a bubble and cannot possibly sustain in the longer run, according to Ruchir Sharma, chairman of Rockefeller International, and founder and chief investment officer of Breakout Capital, an investment firm focused on emerging markets.
“…what’s happened is that the entire world today has a monomaniacal focus, which is AI,” Sharma said at the Express Adda in Mumbai on Tuesday. He was in conversation with Anant Goenka, Executive Director, The Indian Express.
Drawing parallels to the dot com bubble in the late 1990s, Sharma said while Indian IT companies had benefited then due to arbitrage-like business models, this time India looks devoid of any AI “play”, which has made foreign investors “indifferent” towards the Indian markets.”
“…as far as India is concerned, in my 30-year investing history, what I can tell you categorically is I’ve never seen such indifference towards India, right? So which is the fact that, as that old line goes, the opposite of love is not hate, it is indifference. Indifference, being ignored…,” Sharma said.
“…this was always said, by the way, for a long period of time, that our IT is just doing an arbitrage business; it’s not actually, you know, doing innovative stuff, and we lived with that. But today, that is coming back to haunt us a bit, because we don’t have any of that. So, that is the reflection today, that the main reason foreign investment is not coming into India today, because the entire focus is on AI,” he said.
He said, “…in fact, among the financial world, we are being called the anti-AI play…the moment this AI bubble ends, then we are hoping we will get some attention again.”
According to Sharma, foreign capital has become concentrated in the current world, with only a few countries on the front foot in the AI race: the US and Japan among developed economies, and South Korea and Taiwan among the emerging markets. “…I never thought I’d live to see this day, where one company of Taiwan, which is TSMC, their weight in the most popular index that everyone uses, the MSCI index, their weight is greater than all of India put together,” he said.
However, he said, this hyperfixation on AI is bound to fade away at some point. “I believe that this too shall pass, right? As we said, at some point in time, this mania can’t continue, you can’t have the entire global economy being run on one factor,” Sharma said.
While the Indian market has faced multiple headwinds such as the US tariffs, West Asia war, and the focus on AI, it is bound to provide decent returns in the long run, considering the pace at which our economy is projected to grow, he said.
The ace global investor also flagged the need for structural issues to be fixed to make India more attractive to foreign capital. Sharma said India is “still a difficult place to do business on the ground, whether it’s the regulatory framework that we have, or the investigative agencies, or the daily toll that you deal with. There also needs to be more focus on research and development”.
“…the structural weakness of India shows itself, which we’ve spoken about, that the amount of money we spend on research and development in India as a share of GDP, again, shows our priorities,” he said.
While booming economies such as South Korea and Taiwan spend 4-5% of their GDP on R&D, and a developed economy such as the US spends 3% on a large base, this number is just around 0.6% in India’s case. Lastly, Sharma said, securities transaction taxes in the country are still higher than in most other places and need to be reduced in order to attract investors.
Ruchir Sharma is Chairman of Rockefeller International and founder of Breakout Capital. (Express Image) 
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