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Is the India Growth Story Over?

In a television speech to the nation, Indian Prime Minister Narendra Modi urged his people to make sacrifices by spending less on fuel, fertilizer, and travel. He also asked them not to buy gold for a year. “To save foreign exchange, we must accept the challenge of patriotism,” he said. It appears that India's problems do not just stem from the effects of the US-Iran war; India's problems started well before that. Flight of foreign capital has put the Indian currency under tremendous pressure, with the Indian rupee falling nearly 10% in recent months. Many analysts believe that the Indian IT services exports could fall significantly as the artificial intelligence (AI) models begin to replace the IT workers. It could create a balance of payments crisis that could force India to seek the IMF bailout in the not too distant future. Already, the Indian economy has slipped to the sixth-largest economy by nominal GDP, dropping from previous projections that had it at fourth.

Indian Economy Drops From 4th to 6th Rank. Source: IndMoneyApp

Energy Crisis:

India is facing a serious energy crisis driven by the closure of the Strait of Hormuz that has disrupted global oil and gas supplies. While the government has assured citizens that there are no immediate shortages of petroleum or natural gas, the escalating costs of imports are putting extreme pressure on the nation's foreign exchange reserves.

AI Challenge:

Indian IT firms are cutting staff to prepare for the expected disruption from the adoption of AI. For example, the IT services firm Cognizant is planning major workforce reductions that could impact between 12,000 and 15,000 employees globally, with India expected to account for the majority of the cuts, according to a report.

A US-based investment research firm Citrini Research is forecasting a significant disruption to India's traditional IT services sector by 2027-2028, driven by the collapsing cost of AI coding agents. Here's an excerpt of the Citrini research report:

"The country’s IT services sector exported over $200 billion annually, the single largest contributor to India’s current account surplus and the offset that financed its persistent goods trade deficit. The entire model was built on one value proposition: Indian developers cost a fraction of their American counterparts. But the marginal cost of an AI coding agent had collapsed to, essentially, the cost of electricity. TCS, Infosys and Wipro saw contract cancellations accelerate through 2027. The rupee fell 18% against the dollar in four months as the services surplus that had anchored India’s external accounts evaporated. By Q1 2028, the IMF had begun “preliminary discussions” with New Delhi".

Stocks Selloff:

Sensing the growing crisis, Indian stock market investors are selling off their holdings. IN particular, foreign investors have accelerated their exit from Indian equities in early 2026, selling over $20 Billion in the first four months, driving 14-year low ownership levels. Triggered by Middle East conflicts, rising oil prices, and rupee depreciation, this record exodus—marking the worst quarterly selloff in March—was driven by outflows in banking, financial services, and IT.

Investors see the writing on the wall. The Indian economy has already dropped from the 4th to the 6th rank in the world. The Indian currency is under a lot of pressure. India's current account deficit will worsen with the loss of IT services exports.

Comment by Riaz Haq on May 18, 2026 at 9:22pm: @chandrarshrikant

🚨India loses all spots in world's top 100 companies as equity crash bites

For the first time in years, not a single Indian company figures among the world's top 100 listed firms by market capitalisation , a measure of how deeply and relentlessly the selloff in domestic equities has cut.

Reliance Industries, the country's most valued firm, has slipped to around 106th globally from 57th at the start of 2025 and 73rd at the start of 2026. HDFC Bank, India's most valued lender, now ranks 190th, down from 97th at the start of 2025.

Bharti Airtel stands at 202nd, falling from 164th at the start of 2026. ICICI Bank and State Bank of India have dropped to 274th and 276th respectively, from 215th and 231st at the start of 2026.

The decline has been sharpest among India's top technology stocks. TCS, the country's largest software exporter, has seen the steepest fall, with its global rank dropping to 314th from 84th at the start of 2025 and 171st at the start of 2026.

Infosys, India's second largest IT firm, now ranks 590th, down from 198th at the start of 2025 and 330th at the start of 2026. ITC has slipped to 702nd from 296th and 466th at the start of 2025 and 2026 respectively.

https://www.moneycontrol.com/europe/?url=https://www.moneycontrol.c...

https://x.com/chandrarsrikant/status/2056562183753105573?s=61&t...

Comment by Riaz Haq on May 19, 2026 at 7:30am: Subhash Chandra Garg
@Subhashgarg1960
Indian economy is falling apart. Everything is going wrong. India is at Big Risk: Fake growth, Falling Rupee, Energy, LPG shortage. Think of anything | Ex-Finance Secretary Explai... https://youtu.be/YwB_F_bRSD0?si=_f0yWT6RfzD0zv-u via
@YouTube

https://youtu.be/YwB_F_bRSD0?si=6OTDa8WyGdeXhTsT

https://x.com/Subhashgarg1960/status/2056617295494185377?s=20

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The Wire
@thewire_in
Indian Rupee Has Fallen by Nearly 12% Against Pakistani Rupee Since Operation Sindoor

https://x.com/thewire_in/status/2056630870572966216?s=20
---------

The comparison with Pakistan is instructive because it again entered an International Monetary Fund programme in 2025 and was forced to implement strict fiscal and monetary measures.

https://thewire.in/economy/indian-rupee-has-fallen-by-nearly-12-aga...

New Delhi: The Indian currency (INR) has experienced a significant decline against the Pakistani rupee (PKR) over the past 12 months, a period that coincided with the announcement of ceasefire by US President Donald Trump after the 88-hour-long Operation Sindoor in May 2025. On May 15, 2025, the exchange rate stood at 3.2913 PKR per INR By May 18, 2026, the rate had fallen to 2.9010 PKR per INR This represents a depreciation of approximately 11.86%, with a 6.8% fall in the year 2026 alone.

Comment by Riaz Haq on May 24, 2026 at 10:26am: India in Flux: CEA Nageswaran says India facing ‘live balance of payments stress test’ — What it means - The Times of India

https://timesofindia.indiatimes.com/business/india-business/cea-nag...

J.P. Morgan research led by Chief Asia Economist Sajjid Chinoy indicates that net capital inflows into India have dropped from an average of 2.6% of GDP between 2015 and 2019, to roughly 1.4% in 2024, and have nearly disappeared in recent years.

Comment by Riaz Haq on May 27, 2026 at 9:39am: India stocks set for first yearly drop in over a decade as foreign investors leave: Reuters poll | Reuters

https://www.reuters.com/world/india/india-stocks-set-first-yearly-d...

An exodus of foreign hashtag#investors and limited exposure to an artificial intelligence (hashtag#AI) boom batter what was once Asia’s most attractive hashtag#market.

Some analysts say India’s valuation premium, once justified by strong economic growth expectations, is becoming harder to defend. The Indian market trades at more than 20 times earnings, above most major European and emerging markets, but offers one of the world’s lowest dividend yields.

That has left Indian equities vulnerable as global investors look for cheaper markets and higher-return opportunities linked to the AI-led global equity rally, particularly in US technology stocks. South Korea’s AI-laden KOSPI index has surged more than 200% in a year.

Meanwhile, India’s heavyweight information technology stocks index has fallen by more than a third since December 2024.

Already down about 8.5% this year, the Nifty 50 was forecast to rise only around 8.7% to 26,000 at end-2026 from Tuesday’s close, a May 15-27 poll of 24 analysts showed. If realised, the annual decline of about 0.5% would be its first yearly loss since 2015.

It was then expected to bounce to 27,000 by mid-2027 and 29,000 by end-2027.

The BSE Sensex was projected to be 84,150 at end-2026 and 87,895 at mid-2027. The median forecasts for both indices were sharply downgraded from a February poll, conducted before the US-Israel war with Iran began.

”Everyone wants returns at the end of the day, whether it’s foreigners or domestic investors. Nobody wants to just park their money for fun … but the returns are not there, earnings growth is almost negligible to very low.

AI is where the flavour of the town is right now and this is where India, not just we lack it, we are actually on the wrong side,” said Rajat Agarwal, Asia equity strategist at Societe Generale.

Agarwal added domestic buyers who were keeping the market afloat through monthly systematic investment plans (SIPs) were also showing signs of strain.

SIPs, which are regular monthly mutual fund investments by retail shareholders, have grown nearly tenfold over the past decade. Domestic institutional investors (DIIs) now own a record share of Indian equities while foreign ownership is at an all-time low.

”It is thanks to local DIIs and liquidity from retail participants the market has held up,” said Aman Sethia, head of treasury at Groww. ”If this hadn’t been in place, we would have seen the Nifty at around 19,000 or 20,000 over the last year.”

A slim majority of analysts, 13 of 24, said a correction was likely over the coming three months.

They said India’s limited exposure to the global AI trade and its vulnerability to a widening current account deficit due to the Middle East war are discouraging foreign investors from committing capital.

”Our exports are not growing and we know import bills will swell now with high energy prices. Given corporate earnings have not been that strong … we are not that favourably placed,” said Kishan Gupta, director at CD Equisearch.

Gupta added India’s corporate sector had not done enough to build innovation-led cash flows, particularly in AI. ”A culture of innovation – that thing is absent in our country.”

Comment by Riaz Haq on May 31, 2026 at 9:30am: Keji Mao (毛克疾）
@kejimao
India’s greatest weakness lies in having an overly advanced superstructure that is mismatched with its backward economic base and social realities. Put in simpler terms, India possesses first-world aspirations, values, and institutions, but operates with third-world economic resources, social conditions, and governance capabilities. That's why democracy as it stands now may well be a curse on India.

https://x.com/kejimao/status/2061107743013155046?s=20

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ThePrintIndia
@ThePrintIndia
'For China, India poses an ideological threat. It sees Indian democracy as a long-term ideological problem'-Former Foreign Secretary & ex-Ambassador to China, Vijay Gokhale
@VGokhale59
tells Swasti Rao
@swasrao
& Shekhar Gupta
@ShekharGupta
. Watch the full conversation tonight at 8 PM:

#ThePrintOTC

Partners:
@EdelweissFin
,
@NSEIndia
,
@TheQuorumClub
,
@VAHDAM_India
and Chivas Luxe Collective Perfumes

https://x.com/ThePrintIndia/status/2059597989166121002?s=20

Comment by Riaz Haq on May 31, 2026 at 10:52am: Riaz HaqMay 31, 2026 at 10:50 AM
@kejimao

Obviously, Vijay Gokhale is ignorant about how Chinese people view Indian democracy and why they would never see it as an ideological threat. Here is the reasoning.

Even if democracy can be viewed as India’s foundational pillar, significantly preventing the worst outcomes, it has also brought about suffocating, if not deadly, costs.

India adopted universal suffrage democracy while still economically and socially underdeveloped, thereby legitimising many deeply entrenched pre-modern social structures, which have become institutionalised and integrated into India’s governance today.

Idealists like the first prime minister of India, Jawaharlal Nehru, and the early Congress party envisioned oppressed social groups utilising their numerical advantage through democratic elections to create pressure groups, driving gradual social reform and overcoming entrenched societal issues, thus paving the way for economic prosperity.

Unfortunately, this ideal scenario didn’t materialise. Instead, groups formed around identities such as religion, caste, sub-caste, and ethnic affiliations have engaged in “vertical mobilisation” through electoral mechanisms, reinforcing traditional social structures and preserving vested economic interests. This has resulted in an institutionalised system that further hinders social dynamism and reinforces social rigidity.

Consequently, vested interest groups representing antiquated social structures legitimately hijack democratic processes, obstructing reforms beneficial to the entire society, thus significantly hampering social progress and economic development over the long term. Nevertheless, most people have no better alternative than to tolerate this situation.

What type of mistakes are the most challenging to correct? Those that everyone perceives as “correct”. This encapsulates the most profound constraint that democracy imposes on India.

https://x.com/kejimao/status/2061103066133463133?s=46&t=Uy6jyUH...

Comment by Riaz Haq on June 1, 2026 at 8:12pm: South Korea Overtakes India as World’s Sixth-Largest Stock Market

https://www.bloomberg.com/news/articles/2026-06-02/s-korea-surpasse...

South Korea’s equity market has overtaken India’s as the world’s sixth largest, driven by a relentless surge in chip heavyweights powering the global artificial intelligence buildout.

The total market capitalization of Korea-listed companies has soared 86% this year to $5 trillion, while India’s has declined to $4.8 trillion, data compiled by Bloomberg show. Samsung Electronics Co. and SK Hynix Inc., newly minted members of the $1 trillion valuation club, have powered Korea’s equity surge.

Korea’s latest milestone comes after it vaultedpast Canada and other European countries this year, underscoring how investors are concentrating their bets on AI and its critical suppliers. Together with Taiwan, the two Asian chipmaking hubs are rewriting global equity rankings in a way that captures investor fascination over their outsized influence in the AI economy, yet also stirs concern about the risks of an overheated market.

The rally “highlights the continued relevance of South Korean technology companies in the next wave of technological innovation,” said Gerald Gan, chief investment officer at Reed Capital Partners. “It also reflects a broader shift in global capital flows toward major Asian economies, which were once overshadowed by Western markets but are now playing an increasingly prominent role in shaping the future of technology and growth.”

The Korean stock market has benefitted a dual tailwind, as President Lee Jae Myung’s push for corporate reform coincided with the emergence of AI as a dominant investment theme. The Kospi Index has powered past Lee’s 5,000 goal earlier this year and Wall Street analysts are now calling for 10,000.

But given the heavy concentration of gains in a handful of stocks, Ross McGarry, senior investment analyst at Asset Value Investors, cautioned that Korea must follow through.

“This year’s rally has been heavily carried by the memory cycle — Samsung and SK Hynix have done the heavy lifting,” he said, calling the closing in on India “a remarkable milestone.” The real test, he added, is whether Korea can sustain this re-rating through genuine corporate governance reform.

India, meanwhile, has been dragged lower by a weakening rupee, record foreign outflows and a dearth of companies directly linked to the AI infrastructure.

Higher energy costs have also stoked inflation concerns and clouded growth prospects, prompting global funds to sell about $26 billion of local equities this year. India’s stock benchmark is down about 11% this year, heading for its first annual drop after a decade of gains.

“The India growth story has increasingly lost momentum in investors’ minds as the country contends with mounting domestic and external political challenges,” Gan said. “At the same time, longstanding infrastructure deficiencies continue to undermine its ambitions in advanced manufacturing.”

While Korea has overtaken in market value, India’s $4.15 trillion economy — among the fastest growing in the world — still trumps Korea’s $1.93 trillion gross domestic product, according to International Monetary Fund estimates.

One of the theses for investing in the Indian stock market was that the GDP per capita could see a “J-curve in rising domestic consumption at $4,000 or above,” said Stanley Tang, senior portfolio manager at Sumitomo Mitsui DS Asset Management. India’s GDP per capita reached $2,810 this year, according to IMF data.

“Long-term thesis still holds, but inflation is creating a near-term headwind,” Tang said

Comment by Riaz Haq on June 3, 2026 at 9:25am: Bloomberg
@business
India’s ambition to build and export a sovereign AI template across the world is colliding with structural constraints: years of underinvestment in compute capacity, a late start in building the most advanced AI models, deep reliance on foreign cloud providers and a venture capital culture wary of the vast, risky bets that define the global AI race. https://bloomberg.com/news/features/2026-06-02/modi-wants-india-to-...

https://x.com/business/status/2062048540986126535?s=20

--------------

Zhuo Chen | Katrina
@SouthernM46171
India wants sovereign AI. The gap between that ambition and reality showed up in three moments.

Last year, Microsoft blocked a Russian-backed Indian refiner from accessing data sitting on its own leased cloud servers. Not Chinese servers. Not American government servers. The company's own data, on infrastructure it was paying for — and someone else held the key. A third of Indian government systems are in the same position right now.

The structural picture makes it worse. India generates nearly 20% of the world's data and has less than 5% of its AI computing power. The US has roughly 100 times more high-end GPUs. India is feeding the machine; it just doesn't own one.

And the policy response? India's February budget handed foreign cloud providers a 20-year tax holiday before anyone thought to extend the same deal to Indian companies. The government building the case for AI independence wrote its first draft for the other side. It got fixed — but only after the domestic industry complained loudly enough.

#India #AI #SovereignAI #IndiaAI #Geopolitics #Tech

Comment by Riaz Haq on June 3, 2026 at 8:10pm: India Is Losing Its Economic Edge

While external forces have hurt the economy, New Delhi’s troubles are also self-inflicted.

By Sadanand Dhume

https://www.wsj.com/opinion/india-is-losing-its-economic-edge-800c7...

After more than 12 years in office, Prime Minister Narendra Modi faces a painful reality check: His promise to modernize India’s economy hasn’t panned out. Instead, the country faces a rapidly weakening rupee, dwindling net foreign investment, and worries that artificial intelligence will take a wrecking ball to the information technology industry.

————-

Recent weeks have brought a spate of bad news. The rupee, already among Asia’s worst-performing currencies in 2025, has lost 11% of its value against the dollar over the past 12 months. It may breach 100 to the dollar for the first time.

Just last year, Indian officials trumpeted an International Monetary Fund forecast that India was on the cusp of overtaking Japan as the world’s fourth-largest economy at market exchange rates. Instead, India has fallen to sixth place, behind the U.K.. Meanwhile, the IMF projects that India’s per capita income at market exchange rates ($2,812) will fall behind Bangladesh’s ($2,911) this year.

The slippage extends to the financial markets. In the past two weeks, powered by technology stocks, the South Korean and Taiwanese stock markets have overtaken India in market capitalization, pushing India to seventh place in global rankings. Foreign investors have pulled more than $23 billion from Indian equities since the start of the year. Net foreign direct investment in the fiscal year that ended March 31 was a paltry $7.7 billion, down from $28 billion three years earlier. This reflects both repatriations by foreign investors and outbound investments by Indian companies.

The corporate landscape also reflects investor hesitation. Tesla last month said it was abandoning plans to build a factory in India. The Modi government had publicly wooed the U.S. company, hoping to replicate some of the limited success it has had with giving Apple incentives to locate a chunk of iPhone production in India.

These setbacks have triggered criticism of the Modi government. The economist Surjit Bhalla, a former member of the prime minister’s Economic Advisory Council, recently wrote for the Indian Express that the ruling Bharatiya Janata Party’s “handling of the economy has hit a low with no guarantee that it cannot go lower.” Arvind Subramanian, a former chief economic adviser to the Indian government, called for a revamping of the prime minister’s economic team, warning that “sameness of personnel and staleness of ideas are fatal for all political systems.”

Comment by Riaz Haq on June 4, 2026 at 2:30pm: Rajdeep Sardesai
@sardesairajdeep
Rajesh Exports: the Rs 15.15 lakh crore story that needs to be told. LIC was a big investor. Qs: who dictates these high risk investments? Read here:

https://x.com/sardesairajdeep/status/2062583740073914530?s=20

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How Sebi uncovered a Rs 15 lakh crore revenue hole at Rajesh Exports
A shareholder complaint, a Swiss refinery and years of unexplained revenues have culminated in one of the most significant accounting investigations in India's corporate history.

https://www.indiatoday.in/amp/business/story/rajesh-exports-sebi-pr...

It began with a complaint that could easily have gone unnoticed. In March 2024, the Securities and Exchange Board of India (Sebi) received an email from a shareholder of Bengaluru-based Rajesh Exports alleging potential financial misrepresentation linked to large trade receivables that had remained outstanding for years.

Two years later, that complaint has snowballed into what could become one of the biggest accounting controversies India has seen since the Satyam scam, which occurred in 2009.

At the centre of Sebi's interim order is a startling allegation: Rajesh Exports may have misrepresented about Rs 15.15 lakh crore of revenue between FY21 and FY25 through its overseas subsidiaries and step-down subsidiaries.

The figure is so large that it almost obscures the more important story.

This is not a case about missing cash. Nor is it, at least for now, a case where regulators have accused the company of siphoning away Rs 15 lakh crore.

Instead, Sebi is asking a deceptively simple question: can the revenues that Rajesh Exports reported over the years actually be verified?

The answer to that question may ultimately determine whether this becomes an accounting dispute, a governance failure or something much bigger.

For years, Rajesh Exports occupied a curious position in India's corporate landscape.

The Bengaluru-based company routinely reported revenues that placed it among the country's biggest businesses by turnover. In FY25 alone, consolidated revenue stood at more than Rs 4.23 lakh crore. During the five years under scrutiny, the company reported cumulative consolidated revenue of nearly Rs 15.45 lakh crore.

Yet despite those enormous figures, Rajesh Exports rarely commanded the kind of valuation typically associated with companies of such scale.

Investors generally accepted the explanation. Gold refining and bullion trading are notoriously low-margin businesses. Huge volumes often translate into modest profits. The business model seemed unusual, but not necessarily implausible.

Sebi's investigation suggests the real story may have been elsewhere.

The regulator's first major observation was that the Indian business was not driving the numbers.

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