The AI paradox: Threat and opportunity combined
Following recent announcements from Anthropic regarding advanced AI capabilities, market participants reacted swiftly, hammering Indian IT stocks on fears that artificial intelligence would displace the sector’s traditional service delivery model. The concern isn’t new—Sharma noted that during his firm’s US marketing trips in October and November of last year, this question dominated investor conversations.
The persistent worry: given IT’s substantial weight in Indian indices, AI-driven disruption could drag down the broader market. However, Sharma sees a more nuanced reality emerging beneath the surface volatility.
“Is there any lack of expectation that a lot of mundane jobs are going to be replaced by AI? Well, I thought that was the point of AI,” Sharma observed in a recent interview with ET Now. “While there is a knee-jerk reaction to these stocks, would we really go short on them incrementally from here? The answer is no.”
India’s real AI advantage: Implementation over innovation
The perception that India lacks positioning at the cutting edge of AI innovation is accurate, Sharma acknowledges. Indian companies aren’t developing the breakthrough models or foundational technologies that make headlines. But that misses where the real business opportunity lies.
As global corporations rush to adopt AI solutions, they face a massive implementation challenge. Rolling out AI across existing enterprise systems, integrating new capabilities with legacy infrastructure, training workforces, and managing change—this is where Indian IT companies have built decades of expertise and client relationships.
The growing market view, according to Sharma, is that Indian IT firms will serve as essential guides helping global majors navigate AI deployment. This implementation work may not be as glamorous as developing the next ChatGPT competitor, but it represents substantial, sustainable revenue streams.HDFC Securities maintains a neutral position on Indian IT companies in its model portfolio—neither aggressively buying the dip nor joining the selloff. For investors currently underweight the sector, Sharma recommends using corrections to bring positions up to equal weight rather than remaining completely absent from what remains a significant component of the Indian equity story.
Brace for continued volatility, Not normalization
While recent tariff-related relief has markets breathing easier, Sharma warns against mistaking this temporary calm for a return to normal conditions. The current environment—characterized by valuations more than one standard deviation above historical means—suggests volatility will remain elevated.
“We continue to remain in an extremely uncertain world in a market where valuations continue to remain more than a standard deviation above mean,” Sharma noted. “While the worst of the volatility may be over, this is not a normalization as far as volatility. We continue to remain fairly cautious.”
AI-related news flow will continue generating sharp market reactions, particularly in the technology sector. Investors should expect ongoing whipsaw movements as each new development in artificial intelligence gets digested and repriced. The key is maintaining disciplined positioning rather than attempting to trade these violent swings.
India-US trade deal: Relief rally, not game changer
Markets surged on news of progress toward an India-US trade agreement, but Sharma cautions against overestimating the direct earnings impact. At the aggregate Nifty level, the India-US trade relationship wasn’t a significant mover on the way down during tariff tensions, and it won’t be on the way up either.
The real value of the trade deal lies in two less tangible but equally important factors. First, currency stabilization—the rupee had been depreciating aggressively amid trade uncertainty, raising hurdle rates for foreign investors. With trade tensions easing, speculative pressure on the currency should diminish, making Indian equity returns more attractive to international capital.
Second, geopolitical positioning. Combined with recent EU and UK trade agreements, the US deal signals India’s successful navigation of an increasingly fractured global order. For investors concerned about India finding itself isolated or caught between competing power blocs, this multi-lateral trade engagement provides meaningful reassurance.
“Is it a game changer? Answer is no,” Sharma stated plainly. “This reaction in the last two days has been a collective sigh of relief that has gone through the market.”
As the initial euphoria fades, Sharma expects markets to refocus on fundamental earnings delivery—which remains uneven relative to current valuations. The trade deal removes a major overhang and improves sentiment, but it doesn’t fundamentally alter near-term profit trajectories for most companies.
Retail sector: Value format emerges as winner
The retail sector presents what Sharma describes as a tricky valuation picture. Across the board, valuations had run far ahead of fundamentals, creating a disconnect that recent corrections have only partially addressed. The pullback has restored some sanity, but selectivity remains crucial.
Within retail, Sharma identifies value-focused formats as particularly attractive. The reasoning centers on same-store sales growth potential in a low-inflation environment. When prices aren’t rising dramatically, retailers must drive volume growth to deliver comparable store sales gains—a challenge that favors value-oriented operators.
Rural recovery adds another dimension to the retail thesis. After years of subdued performance, rural markets are showing signs of stabilization and modest growth. Additionally, operational efficiency improvements are creating margin expansion opportunities for well-managed retailers even without aggressive top-line growth.
While compliance restrictions prevent Sharma from naming specific stocks, his directional tilt toward value retail is clear. In an environment where consumers remain price-sensitive and inflation pressures have moderated, retailers competing on value proposition rather than premium positioning appear better positioned for sustainable same-store sales growth.
Electronics manufacturing: The multi-year winner
If there’s one sector generating unqualified enthusiasm from Sharma, it’s electronics manufacturing services. The recent steep correction in EMS stocks has created what he views as compelling value, but the real story is the confluence of multiple powerful tailwinds supporting sustained growth.
The foundation remains government policy. Make in India and Atmanirbhar Bharat initiatives have driven EMS growth for years, but recent developments have added new dimensions to this support. The post-budget policy framework makes clear that domestic demand should increasingly be met through domestic production—creating guaranteed volume growth for local manufacturers.
Layered on top of government support is the geopolitical imperative. As India signs free trade agreements with major economies, there’s an implicit understanding that expanding market access should translate into expanding domestic production capabilities. This isn’t just industrial policy—it’s strategic autonomy.
Perhaps most importantly, Indian EMS companies are moving up the value chain. What began as basic assembly operations has evolved into genuine manufacturing with increasing percentages of components produced in-house. This indigenization trend improves margins while reducing dependence on imported inputs.
“Not only are they doing very basic assembly, a lot of parts are being manufactured in-house and then moving up the value chain,” Sharma explained. “The indigenisation percentage will continue to go up. In that sense it is a long-term theme. The correction has helped and we are definitely quite excited with this.”
Sharma sees this as a multi-year theme with double-digit growth potential extending well into the future. The correction in EMS stocks hasn’t changed the fundamental trajectory—it’s simply created better entry points for investors who understand the structural story.
A framework for navigating uncertainty
Sharma’s sector-by-sector analysis reveals a consistent philosophy: distinguish between noise and signal, between temporary reactions and fundamental shifts. The AI-driven IT selloff represents noise—emotional reaction to inevitable automation that doesn’t negate India’s implementation advantage. The trade deal rally similarly represents relief rather than transformation.
Conversely, the EMS buildout and retail evolution toward value formats represent genuine structural changes playing out over years rather than quarters. These trends deserve patient capital committed to riding through volatility rather than attempting to trade it.
The current market environment—elevated valuations, ongoing geopolitical uncertainty, rapid technological change—demands this kind of discernment. Panic selling into AI fears or euphoric buying on trade news are both likely to prove suboptimal strategies.
The path forward
For investors wondering how to position portfolios amid these crosscurrents, Sharma offers pragmatic guidance: maintain neutral IT exposure despite near-term volatility, recognize trade deal benefits as sentiment-positive rather than earnings-transformative, favor value retail over premium formats, and embrace the EMS theme as a multi-year structural winner.
Above all, expect continued volatility without normalization. Markets trading more than one standard deviation above historical means while navigating AI disruption, geopolitical realignment, and uneven earnings delivery won’t suddenly become placid. The volatility itself may be the new normal.
Those who succeed in this environment will be investors who resist overreacting to each new development while remaining positioned in sectors where structural tailwinds outweigh cyclical headwinds. As Sharma’s analysis makes clear, that balance currently favors electronics manufacturing and selective retail over wholesale IT exposure or indiscriminate trade-deal enthusiasm.
The correction in EMS stocks may prove one of those rare moments where short-term pain creates long-term opportunity. For investors willing to look past the noise, the signal is clear: structural themes matter more than ever when volatility makes trading increasingly difficult and valuations leave little room for error.