The noise heard on global stock markets last week was not of a bubble popping, but perhaps of some hot air escaping. Through October, US technology companies saw about $2 trillion in market value wiped out as concerns over the sector’s rising debt and returns from artificial intelligence investments prompted a selloff. The noise reached a crescendo last Friday, when more than $1 trillion was shaved off the tech stocks.
The pressure for correction was building up for some time as large tech companies continued to pour money into AI infrastructure without adequately addressing questions over returns. As a result, their debt surged along with capital expenditure for about two years. JP Morgan expects global AI capex to reach $5.5 trillion by 2030, including $900 billion in 2026 alone. Google’s parent Alphabet has raised more than $130 billion in debt since 2022, while Amazon’s debt is approaching $130 billion and Meta’s $100 billion. In this context, the underwhelming July-September quarterly results of the three majors triggered investor anxiety. China, too, witnessed a similar trend, with Shanghai’s Star 50 index tracking AI and semiconductor companies losing 40 percent over four months.
However, optimists are not ready to call it quits. The global stock rout coincided with some unexpected cheer for Indian IT companies. At a time several experts were writing off the Indian tech sector, arguing that domestic companies had fallen behind in the AI race, it staged a smart comeback on the bourses in October. IT services stocks outperformed the Nifty by 14 percentage points during the month. Yet, the Indian market is not yet altogether out of the woods.
The economy continues to send mixed signals. GDP growth remains buoyant, but the rupee is under pressure. Foreign institutional investors are pulling money out of Indian equities even as the government is hinting at a long-term capital gains tax cut. GST collections are surging on the back of festive-season sales. But the latest reading of a purchasing managers’ index, published Monday, suggests that the manufacturing sector lost momentum in October, expanding at a slower pace than in September.
Market volatility could intensify further if the US mid-term elections flip the control of US Congress from the Republicans to the Democrats, constraining President Donald Trump’s room for policy manoeuvres. Therefore, Indian investors staring at the silver lining should heed the dark clouds they are framing at the moment.
