Ramesh Damani on Anthropic Vs Indian IT | Defense & Critical Minerals | Can India Survive Trump 2.0?

In a discussion with Romesh Dammani, the focus is on the evolving landscape of Indian IT and global economic shifts. Dammani notes a shift from traditional software dominance to a future led by critical minerals and defense industries, driven by changing global dynamics and protectionism. He highlights the challenges Indian IT faces with innovation and risk-taking, and the potential impact on employment. Dammani also discusses geopolitical influences, particularly the role of the US, and the implications of a declining dollar. Despite uncertainties, he remains optimistic about India's investment potential, driven by demographic dividends and emerging opportunities.

• The Indian IT industry is experiencing a significant shift, with traditional software companies facing challenges from new tech entities like Anthropic.
• The valuation of top Indian software companies is being compared to newer tech firms, highlighting a shift in market perception and valuation metrics.
• There is a potential derating of traditional Indian IT companies as the focus shifts from software and intellectual property to other emerging sectors.

"The top Indian seven software companies are worth about $350 billion. Anthropic is worth $350 billion in itself."

• This quote illustrates the stark valuation comparison between traditional Indian IT companies and newer tech firms like Anthropic, indicating a shift in market dynamics.

"I think the next 10 20 years will be led by a different set of leaders than what we saw in the post 1992 era."

• This statement suggests a forthcoming change in leadership within the industry, moving away from traditional software companies to new tech leaders.

• Traditional IT companies are criticized for their conservative approaches, focusing on dividends rather than investing in new technologies.
• There is a concern that the conservative nature of these companies may hinder their ability to adapt to rapid technological changes.
• The stable profit margins of service-based business models are under threat from innovative tech advancements.

"They are using their cash piles to pay out dividends as opposed to investing in new technology like AI learning models or product development."

• This highlights the criticism that traditional IT firms are not investing enough in innovation, which may affect their long-term competitiveness.

"I think maybe the ship has sailed for these companies in terms of riskability."

• This indicates that traditional IT companies might have missed the opportunity to pivot towards riskier, yet potentially more rewarding, technological investments.

• There is uncertainty about the future employment landscape for Indian IT professionals, with potential job displacement due to technological changes.
• Despite concerns, new job roles are expected to emerge, similar to past technological shifts.
• The economic impact could extend to other sectors, such as real estate, due to the high percentage of IT professionals involved.

"I don't think there'll be a you know the easy entry-level software jobs that people got graduating from IIT or technical institute will probably be gone."

• This quote reflects the anticipated decline in traditional entry-level IT jobs, necessitating a shift in skill sets for future employment.

"I think overall the employment will continue to be fine I would not be too worried about that at this point."

• Despite potential job displacement, there is optimism about the creation of new employment opportunities in emerging sectors.

• Indian IT companies have the potential to pivot and adapt, but this requires investor patience and acceptance of lower profitability during the transition.
• The challenge lies in convincing the market to support these companies through a period of transformation and elevated valuations.

"The street will have to forgive a period of low profitability."

• This quote underscores the need for investor patience as IT companies transition towards new business models and technologies.

"I think both are challenging."

• This highlights the dual challenge of IT companies needing to innovate while also managing investor expectations during the transition.

• Economic decisions made in Washington continue to have a significant impact on global markets, including India.
• The influence of US economic policies on interest rates, capital flows, and international relations remains strong.

"The decision of the Fed governor decision on tariffs, the decision on who's a friend and who's a foe within NATO is all being influenced by Washington."

• This quote emphasizes the ongoing global influence of US economic policies on markets and economies worldwide.

• The future of value creation in India is likely to shift from traditional sectors like brands and intellectual property to critical minerals and materials.
• This shift aligns with global trends focusing on sustainable and resource-driven economic models.

"A lot of the materials particularly the critical minerals that are getting so much attention will continue to constitute the value the apex."

• This suggests a future focus on materials and minerals as key drivers of economic value in India, replacing traditional sectors.

• The modern economy's reliance on critical minerals and strategic alloys is emphasized, as they are essential for various industries, including defense.
• Global supply chains for these resources are shifting, with countries and regional blocs aiming for self-sufficiency in critical minerals.
• Control over stockpiles and processing capabilities of these minerals is becoming increasingly valuable due to their strategic importance.

"The value creation over the next 10-20 years because a modern economy cannot function without critical minerals without strategic alloys for example."

• Critical minerals and strategic alloys are foundational to the functioning of modern economies, highlighting their importance for future value creation.

"It used to be that oh we want these critical minerals we'll get it from Africa process it in China and cheap and almost regular supply chain. I think that world has changed."

• The traditional global supply chain model for critical minerals is becoming obsolete, with a shift towards regional self-sufficiency.

• Software is increasingly seen as a commoditized business, with less emphasis on its uniqueness compared to strategic resources.
• The market is shifting its valuation focus from software and intellectual property to control of strategic resources and defense capabilities.

"I've always been a big software intellectual property financial instrument type of guy but increasing I realize that software is becoming commoditized business."

• The speaker acknowledges a personal shift in perspective, recognizing the commoditization of software and the growing importance of strategic resources.

• The geopolitical landscape is influencing trade deals, with nations like India navigating complex relationships with major powers such as the US and Russia.
• India's strategy of engaging with multiple international players has led to favorable trade deals, despite uncertainties in US foreign policy.

"What the Indian government has done, I think is a good deal. What they did was they tried to strengthen the enhance by doing deals with so many other players."

• India's approach to international trade has been strategic, engaging with various global partners to secure advantageous deals.

"I'm given Trump's ability to change or pivot on a dime. I'm not very hopeful that given that what could happen next in Iran or Venezuela that India would support him."

• The speaker expresses skepticism about the stability of US foreign policy under Trump, impacting India's strategic decisions.

• The global trend towards self-sufficiency is gaining momentum, with countries aiming to reduce reliance on external powers like the US or China.
• This shift is particularly evident in sectors such as defense and metals, where self-reliance is becoming a priority.

"I think that's probably a dominant theme that is going to run through the world economies now that everyone wants to be self-reliant."

• Self-reliance is becoming a dominant economic theme globally, as nations seek to secure their own supply chains and reduce dependency on others.

• Textiles and data centers are emerging as promising investment opportunities due to global economic shifts and government incentives.
• The Indian government is providing tax breaks to encourage the establishment of data centers, aiming to attract US corporations and benefit local suppliers.

"I think textiles for example in data centers are two new themes that benefit from all these uh the way the world is shaping up in the future."

• Textiles and data centers are identified as sectors poised to benefit from global economic changes, offering investment potential.

"The government has given some extraordinary tax breaks in effort to move the data centers here it makes sense to me that we'll move out here provided we speed up the process."

• The Indian government is incentivizing the establishment of data centers through tax breaks, aiming to accelerate their development and attract investment.

• Discusses the paradox of rising prices leading to increased consumption, particularly in critical minerals like Germanium.
• Highlights the dependency on China for rare earth supplies and the urgency to find alternative sources.
• Mentions companies in the mining sector that are poised to benefit from the current market dynamics.
• Suggests a transitional phase where markets will reevaluate companies with access to critical resources.

"The people I talked to, for example, you know, Germanium is one rare earth which China controls 90% of the supply. Now these guys have six months stockpile. What are they going to do after six months?"

• This quote emphasizes the dependency on China for rare earth elements and the urgency to secure alternative sources.

"There are companies that now figure that out and are, I think, the critical earths corridor, for example, or the listed companies that are already in the mining space for rare earth."

• Highlights the opportunity for companies already positioned in the mining sector to capitalize on the current demand for critical minerals.

• Discusses the trend towards self-reliance and protectionism in global markets.
• Indicates a shift towards domestic manufacturing in major economies like India, EU, and the US.
• Notes the impact of protectionism on international collaboration, particularly in defense and technology sectors.

"The trend that Tamina talked about, this self-reliance and protectionism, I think will be fairly dominant themes."

• This quote underscores the growing trend of protectionism and its potential impact on international economic policies.

"India will make it themselves, EU will make it themselves, America will make itself."

• Reflects the increasing focus on domestic production and self-sufficiency among major global players.

• Discusses the historical role of the US as a global economic leader and its changing influence.
• Highlights the impact of US protectionist policies on global trade and market dynamics.
• Considers the implications of a declining US dollar and the challenges in predicting its future.

"The US provided the protectionism and as a result of that it became the first among equals in almost everything out there plus the dollar was used as a... all that is going to change."

• This quote reflects on the historical economic dominance of the US and the potential shifts in its global influence.

"Trump wants a poorer dollar; he doesn't want a strong dollar. The official policy is we want a strong dollar, but Trump doesn't really care because all dollar has been declining."

• Highlights the conflicting policies regarding the US dollar and its implications for international markets.

• Discusses the potential political consequences of current economic policies in the US.
• Draws parallels to historical events in India, suggesting possible outcomes for future US elections.
• Considers the role of public sentiment and electoral outcomes in shaping future economic policies.

"The only check that I see coming to all these policies is in November 26 when the US goes for midterm election."

• Suggests that upcoming elections could serve as a check on current economic policies and influence future directions.

"Mrs. Gandhi imposed the emergency in this country and then she removed the emergency and voluntarily called for an election, but she was wiped out from the northern states in the 1980s."

• Draws a historical parallel to emphasize the potential impact of unpopular policies on electoral outcomes.

• Discussion on the potential consequences of political changes in America, focusing on the influence of a single personality on the country's fabric.
• The idea that political shifts can lead to irreversible changes in international trust and foreign policy.

"That's not America. It's a free open country where people respect different cultures, different value systems."

• Emphasizes the traditional values of America as a diverse and open society, suggesting that current political dynamics might be altering this perception.

"If he manages to win the election or do better than expected, I think then we're in for a really rocket time in the world."

• Predicts significant global impacts if the current political leader remains in power, implying potential instability or heightened tensions.

"Once the pendulum swings, it swings."

• Suggests that political changes often have lasting effects, making it difficult to revert to previous states of international relations and domestic policies.

• Analysis of gold and silver as investment vehicles, contrasting them with equities.
• Discussion on the long-term performance of gold compared to stocks like Infosys.

"I used to think that be in equities avoid gold and silver completely."

• Reflects a traditional investment mindset favoring equities over precious metals due to better long-term returns.

"The long-term kagger for gold is you know 3% over 100 years or something like that."

• Highlights the relatively low long-term growth rate of gold compared to other investment options.

"Gold and silver are good for traders who would can move on price speculation."

• Indicates that gold and silver are more suitable for traders than for long-term retail investors, due to their price volatility.

"The world is now moving perhaps to a commodity-led cycle."

• Suggests a potential shift in the global economy towards commodities, which might increase the attractiveness of gold and silver.

• Examination of investments in the entertainment sector and the resurgence of self-sufficiency as a strategic theme.
• Consideration of the motivations behind investing in forgotten sectors with compelling valuations.

"The overarching theme is what I suggested to you ladies and gentlemen today is that defense and self-sufficiency."

• Indicates a strategic focus on sectors that enhance national self-reliance and security.

"No one wants to be dependent anymore."

• Reflects a growing trend towards reducing dependency on external sources, influencing investment strategies.

• Positive outlook on investing in India, driven by economic growth and demographic advantages.
• Emphasis on the long-term potential of the Indian market despite occasional market volatility.

"India is a great place to invest your money."

• Asserts confidence in India's investment potential, highlighting historical growth and future opportunities.

"I come back with a great sense of optimism."

• Expresses a positive sentiment towards the efforts and potential of Indian businesses and promoters.

"I think because of the demographic dividend that India is enjoying at this moment."

• Points out the demographic trends in India as a significant driver of economic growth and investment opportunities.

"People who invest today at today's valuations in three years will be better off."

• Encourages long-term investment in the Indian market, suggesting that current valuations present good opportunities for future gains.