Athenas Vamakisidis, Deputy Director of the IMF's Department of Currency and Capital Markets, told Business Today that improvements in global artificial intelligence (AI) markets could indirectly harm India. He noted persistent concerns regarding capital outflow from emerging markets, as well as the future of the technology services and banking office operations sectors.
Vamakisidis emphasized that although India does not hold as significant a share in the AI ecosystem as other markets, changes in investment sentiment in developing countries, driven by the desire to reduce risks, could also affect investments in India. He clarified that the cause of this influence would not be the emerging markets themselves, but rather the general trend toward risk reduction.
This warning came at a time when the IMF identified rising sovereign bond yields, potential corrections in the AI stock market, and cybersecurity threats as risks related to global financial stability. Vamakisidis pointed out that the increase in government bond yields is an immediate concern. Further growth in this yield could lead to a decline in the stock market, including AI stocks, which would have a broad impact on the bond market, the credit market, and the real economy.
He also commented on the possibility of an 'AI bubble,' noting that current valuations are not excessive due to strong company earnings. Nevertheless, any weakening of corporate earnings could increase valuation pressure and stimulate sell-offs.
India faces an additional risk related to the impact of AI on traditional areas of technology services, software, and office operations where the country has achieved significant success. On the other hand, there are concerns that AI could negatively affect back-office operations, logistics, and software, areas where India is particularly strong. However, he cautioned against drawing definitive conclusions about the potential impact.
Vamakisidis added that market reactions to concerns about AI disruptions are sometimes excessive, and the IMF does not yet see a similar impact on the real economy data.
Against the backdrop of the IMF's warning, the Indian stock market saw a significant decline, especially in the banking, AI, and technology sectors, where selling continued. The IMF also issued warnings specifically regarding these sectors. Although several other factors contribute to this decline, such as rising crude oil prices, quarterly reports, and the sell-off of large-cap stocks, it remains unclear how the market will react to this warning going forward.