The market dipped initially in the first half of the day, but towards the later second half, there was a very sharp recovery, catching all bears on the wrong foot. A lot of algorithms probably lost money today. The market is clearly sending a message: “I don’t care what Nvidia’s results are; I don’t care what bear market operators are thinking; I am going up right now.” The support came through at 25,000, which is a very positive outcome, at least for the large-cap moves in the market today.
Today, we are going to discuss the AI bubble, if I may call it that, and whether we should be wary of it. We’ll explore how the entire segment is looking versus historical bubbles. We’ll discuss all of that, although we will continue to follow the price trends closely.
Market Overview
As you can see here, Nifty has indeed crossed the previous high handsomely. 25,151 is the closing price, up 0.4%, and we are closing today at an all-time high. It’s an amazing recovery from mid-August, and in the last ten sessions, while it didn’t seem like the market was running, we have recovered or gained almost 1000 points.
Nifty Next 50
Nifty Junior wasn’t so lucky. It struggled at the previous high, was sharply lower midday, but recovered most of it, ending down only a quarter percent. It looks like it is ready for the next leg up
Nifty Mid and Small Cap
Mid-caps weren’t as bullish today; it’s the second day of some sideways consolidation, and they did not attempt the previous high yet, ending down by almost half a percent. Small caps have also reverted back to the previous high, maybe a retest here, and they closed down 0.6%. So, the larger part of the market did not participate today, but the large caps did.
Nifty Bank Overview
I anticipate that today we will again see FII (Foreign Institutional Investors) buying data, which is not yet available at the time of shooting this video. The Nifty Bank index went to the 40-day moving average and returned flat, at 0.02%. No movement there at all; the Nifty Bank has just gone flat.
Momentum Trends
Momentum trends show more declines than advances, with 162 advances against 340 declines. So, while the market has maintained Nifty levels, the broader market was actually weaker than yesterday.
FIIs sold 1300 crores worth of stocks yesterday, while DIIs (Domestic Institutional Investors) bought 439 crores. You can see that in the last two sessions, DII participation has reduced substantially; they were running at an average of 3000-2500 crores, but this has dropped in the last two sessions. FIIs, who have been selling a lot, had started buying in the last four sessions but reverted to selling yesterday. We’ll have to see what the numbers show for today.
Nifty Heatmap
In today’s heat map, you can see Reliance leading from the front along with Tata Motors, ITC, Britannia, and HCL Tech gaining ground. Reliance announced a one-to-one bonus in an upcoming board meeting, so we will likely get a final announcement on that day, but more or less, it’s a done deal. There was a huge rally in Reliance, but it petered out towards the end, trapping a lot of folks who bought just on the bonus news, which is nothing but an accounting entry. The second half of the large caps were extremely muted, with only IOC and PFC making gains. Otherwise, you see more or less red across the board in Nifty Next 50, which didn’t do as well as Nifty. The entire focus was on Nifty.
Sectoral Overview
FMCG took the lead today after a long time, up 0.7%. Energy, autos, and IT also rose by more than half a percent, while Nifty was up 0.4%. The rest saw minor gains and losses, with metals and pharma down by about half a percent. For the last month, PSU banks and real estate have performed the worst, down 6% and 5%, respectively, while pharma (+5.6%) and IT (+4%) have performed the best.
Sectors of the Day
Nifty Oil & Gas Index
Oil and gas continue to rally. This may have some repercussions at some point when oil again comes closer to $90 or $100, but for now, it remains near the $80 mark, so no immediate problem. Stocks like GSPL, BPCL, HPCL, Indian Oil, Reliance, and Oil India were all running, with the oil and gas sector overall up 1.6%.
Stocks of the Day
TV18
TV18 Broadcast was up 7.6% today, probably due to some announcements in the Reliance AGM that speculators picked up. It has been consolidating for a while; since 2018, it has not been able to move up significantly, and above 80 is where it could gain some ground. Right now, it remains within the same range in the long term.
Story of the Day : Should we be wary of the AI Bubble?
Nvidia is sort of the father of the AI bubble; it’s the most followed and the highest market cap company in the world. When Nvidia announces results, everyone listens with bated breath because money moving in and out of Nvidia moves global markets. Recently, Nvidia went through a sharp 35% correction between June and August, making lower highs. Pre-results, it was at $120, and post-market, it dropped by about 6% or 7%. The results are still strong, with more than 100% year-on-year growth and 15% to 20% quarter-on-quarter growth, which is amazing. But when you’re priced to the moon, any announcement becomes a potential disappointment, which is exactly what is happening here.
So, this AI bubble—well, I was talking to some AI experts recently. Fortunately, several of my batchmates are in this field, and while it’s difficult to fully understand what they talk about, from what I could gather, real-life applications of AI are still far away. A lot of things have been built, but it’s not yet translating into significant activity that will improve cost structures or the efficiency of human resources. It is helping, but for the common man, AI isn’t there yet. So, maybe we have priced AI-related stocks much ahead of the curve.
Hedge fund Elliott says that Nvidia and the AI hype may be unsustainable, and there is skepticism about the long-term viability and cost efficiency of AI applications. The hype is clearly visible. There are Lamborghinis parked at Nvidia’s office; they say one out of every three Nvidia employees has a net worth of $20 million or more. This shows what kind of rock star the Nvidia CEO has become. These are all signs that the hype might be getting out of hand. Gartner suggests that 30% of generative AI projects will fail by 2025 due to high costs. Mainstream industries have yet to fully embrace AI and see a return on investment, which is another concern.
There are parallels to historical bubbles. I’m nobody to declare whether this is a bubble or not, but it certainly looks like one. Whether it is or not will only become clear in hindsight, and then we can say, yes, that was a bubble. A speculative bubble driven by technology promises can ultimately burst due to overestimated revenues. This situation sounds very similar to the British Rail Boom in the 1840s, which parallels today’s scenario. The dot-com bubble is another example, with companies like Amazon and Pets.com; only a fraction of companies survived the crash. Amazon is an exception that rallied later on, but 99.9% of dot-com projects failed.
You can see that even stocks like Intel, which should have been part of this rally, are starting to fail. Intel is down to 25-year lows. Advanced Micro Devices is back to where it was a few years ago. Meta has gained but has been choppy since the beginning of this year. This is a prime example of how Cisco Systems, the darling of the dot-com boom, looked before the crash. The left chart is of Cisco, and the right chart is of Nvidia, and you can see how similar they look right now. Cisco went through a huge crash post that, and this is where Cisco is now—back to where it was 25 years ago. Will Nvidia face the same outcome? That is the question we can’t answer, but it is definitely a question on our minds.
The best way to approach this is to be prepared for some sort of AI meltdown over time. Make sure that your strategies can automatically adjust for sectoral changes. If this one sector comes down, something else will go up. Have some clear exit plans, and don’t depend too much on one stock or sector to carry your portfolio. While this may not apply much to India, as we have very little AI exposure, some of our IT stocks have had run-ups based on their AI projects. So, there are some implications if the AI bubble bursts. It’s not entirely clear how India will be impacted, but the global markets will definitely be roiled if Nvidia unwinds at any point.
