Indian Tech Companies: AI Opportunity: We expect to see an Indian startup among the top ten global companies in the next 10 years, says Aswath Damodaran

Aswath DamodaranTeacher, Stern School of Business, New York Universitysays AI will be a key frontier for emerging companies. If this sector grows significantly, the question arises whether the top five companies will continue to be based in the United States. It would be encouraging to see at least one Indian company among these leaders. Damodaran believes Europe could have difficulty forming a major player. Indian companies now have a unique opportunity, especially as China has restricted its major technology players such as Tencent, JD and Alibaba, limiting their potential to invest in AI. This creates an opportunity for India to take advantage of the situation, but it will require significant effort. If a prominent Indian technology company appears among the top ten global companies according to market capitalization in the next decade, it would be an exciting development.You have said that Indian IT companies, the traditional ones, are like the old American manufacturing companies, that is, they are good, but they are mature and past their prime. But since everything is now being directly impacted or affected by AI, do you think Indian IT companies Can they regain their charm as long as they implement AI business correctly?
Aswath Damodaran: I am referring to the big Indian technology companies. the big one Indian technology companies They had their roots in outsourcing and were created as support companies for American companies that wanted to outsource a lot of things. So look TCShydrochloride hydrochloride, infosys either wiproand you’re basically looking at companies that were built around that and there was growth there. They were interesting companies, but they have aged.

So when I talk about the aging of Indian IT companies, I am talking about those large companies. But Indian IT has been much more dynamic in recent years in terms of startups and young emerging companies. I’d like to see more depth there rather than just another app company that can grow. I’d like to see more depth there. Three of the world’s five largest technology companies are run by Indians. Indians have long contributed to the great technological revolution of American companies.

I think it might be time to bring it in-house and start building the next big Indian software company. I’ll be pretty honest though: AI is a space where the companies that are making money right now are the ones building the AI ​​infrastructure, the chip companies. Nvidia is a classic example and that doesn’t surprise me. The first companies to benefit from the Internet boom were Cisco and the other companies that built the infrastructure. The big question with AI around the world is that everyone talks about all these amazing products and services that have come from AI, but so far it’s been a disappointment.

I notice an AI button in almost everything I do now. My email has an AI button and all it does is clean up my grammar. It’s not something I would pay an extra $5 a month or even $2 a month for. They’re trying to reach consumers with all this cool AI stuff, but when will we see the results? I think it is selling massively, but I don’t think people are buying it yet, that could change if the products and services become more sophisticated.

Therefore, AI will be the next big frontier for emerging companies. And if it becomes a big market, which I think it will, will the top five companies still be American? Because every big revolution we’ve had in the last four decades, you look back and see who the biggest winners are, and they turn out to be American companies. I would like at least one of those companies to be an Indian company. In Europe I have no hope. They have almost no chance, but maybe a company from that group. What gives Indian companies an opportunity is that China has hurt itself, because it took its big tech players and broke their knees. Because? Because I was afraid of how much power the Tencents, the JDs and the Alibabas were generating.

Five years ago he took them to the woodshed, broke their knees and told them, don’t be so big because we’re worried about how big you are. In the process, they could have hurt companies that were best positioned to invest money in AI at the moment. India now has a chance to catch the breeze, but it will be hard work. Building a business is never easy. I think that will be my indicator when I look at the top 10 market cap companies in the world in 10 years, I see a big Indian tech company that doesn’t exist right now, that would be exciting. For those who follow his blog, there is one company he has always valued every year: Tesla. So, if you had the option to value an Indian company every year, which Indian company would you like to value?
Aswath Damodaran: I could choose Zomato because I value companies because they fascinate me. I don’t care if I misunderstand them. They fascinate me because they are changing. There are things that Zomato has done that I think are really good and things that I have questions about and that is the basis of the rating. Does it mean I’ll do it right? I mean, the reality of valuation is that you are right for a brief moment. Then you will be wrong again if you measure right and wrong based on price being different from value. So Zomato could become one of the companies I will visit again. And if there are other young companies that catch my attention, I will add them to my list.

His blog always has a rolling number of projected returns in the market, which focuses on valuations and risk-free returns. So based on your model, if you have to look at the projected returns of the Indian markets after the recent rally, what should be the anticipated and expected returns of the Indian markets, assuming we have seen a linear movement in the last three years? ?
Aswath Damodaran: Ultimately, the returns you get from stocks come from what you pay up front and the expected cash flows you will get from what you pay. I don’t think it’s debatable. Indian stocks are priced extremely high right now. I can see what’s driving it. The history of India is strong. But if we take Indian stocks and look at their price as a whole, I would be surprised if they earned 3% more than what they can earn on a government bond, an Indian government bond, which is a pretty low risk premium, so This is how the history of India unfolds.

Are people being too optimistic about Indian history? Absolutely, because Indian history has some weak links that are right now being covered up by the force of growth. But I think it’s a scene of three steps forward and two steps back. There will be disappointments. It won’t be the end of the world. It is a story that is going in the right direction. But anyone who invests in Indian stocks expecting everything to go well for the next 10 years is asking for trouble. You have to be realistic. This will be a story where there will be disappointments and there will be setbacks. But as long as the trend line is upward, you have to think of it as a victory and the Indian story will win, but it will have some casualties along the way in terms of people overreaching.

If Aswath Damodaran of 2024 meets Aswath Damodaran of 1980, what would Aswath Damodaran of 2024 share to indicate or teach the young Aswath Damodaran of 1980?
Aswath Damodaran: I will say don’t take yourself too seriously because the reality is that there are so many things, not just in the markets, in business, that are out of your control, that acting like you can control them because you have more data and more powerful models and have to have the best people working for you is, I think, arrogance. The biggest enemy of investing is arrogance and the last 34 years have just taught me that you can do everything you think you should do, that you have done things right and that you will be wrong one hundred percent of the time, and that is all. That’s fine and that’s the message I would send.

It’s a lesson I’ve learned but sometimes it’s a lesson in the beginning at least it’s a difficult lesson because you are trained to believe that if you are right and you are wrong it is a sign that you did something wrong, I no longer win. I own myself for the mistakes I’ve made because I’m going to make mistakes but I’m also going to do all the right things and it’s going to look like a mistake because the world changed around me. I mean to give the example of the valuation of a hotel at the end of 2019.

I could have done everything right but six months later my assessment had been terribly wrong. Because? Because I wouldn’t have predicted COVID. I can’t go back and beat myself up saying why didn’t you see it coming because no one did. So there are things you control and things you don’t, I call this the karmic point in assessment, you can do everything you can but there is a point in assessment where you say: I have done everything I can, I have collected everything. the data. , I used all the tools, the rest is out of my hands, so maybe there are things in Indian philosophy that you can turn to that will make your life easier if you are a valuation investor because you recognize when to let go and say it’s out. In my opinion, it is a very healthy point to invest in valuation.