THE HINDU

Wednesday, July 3, 2024 13

Chennai
Business

Kotak MF lifts Echoes of dotcom bubble haunt

curbs on small AI-driven American stock market
cap scheme While various metrics show stock valuations, investor exuberance have yet to hit peaks reached at turn of the century, the similarities are easy to
spot; a small group of tech stocks, including AI chipmaker Nvidia, symbolise today’s market recalling ‘Four Horsemen’ of 1990s: Cisco, Dell, MS, Intel

now than at the peak of the More broadly, the S&P

NEWS ANALYSIS dot-com bubble, trading at 500’s price-to-earnings ra-
31 times forward earnings, tio of 21 is well above its his-
Reuters compared to as high as 48 torical average but below
NEW YORK times in 2000, according the roughly 25 level
to Datastream. reached in 1999 and 2000,

A
U.S. stock rally su- The difference is clear in according to Datastream.
percharged by ex- the valuations of Nvidia “Our base case is that
citement over Artif- and Cisco, a key provider this tech bubble won’t
icial Intelligence (AI) is of products supporting In- burst until the valuation of
Tough time: It was challenging to handle continuous drawing comparisons with ternet infrastructure, the overall market has
flows amid elevated valuations. GETTY IMAGES/ISTOCK the dotcom bubble two de- whose stock has yet to res- reached the sort of level
cades ago, raising the ques- cale its peaks of the dot- that it did in 2000,” Capital
Suresh P. Iyengar tion of whether prices have com boom. Economics analysts wrote
MUMBAI again been inflated by opti- While both stocks have in a note.
mism over a revolutionary soared, Nvidia trades at 40 Dotcom investors were
Kotak Mutual Fund lifted the restriction on technology. times forward earnings es- much more euphoric by
investment in its small-cap fund after four AI fever, coupled with a timates, compared to Cis- some measures. Bullish
months as the fund house saw earnings growth in resilient economy and co’s 131 level reached in sentiment in the widely fol-
this sector. stronger earnings, has lift- March 2000, according to lowed American Associa-
“We are resuming the subscription of units in ed the S&P 500 index to Datastream. tion of Individual Investors
763a06ac-0a7b-461c-8dc0-68e058ba5548

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Kotak Small Cap Fund, effective July 2. Political fresh records this year fol- survey, often seen as a wor-
uncertainties around India’s elections are behind lowing a run of more than Earnings outlook rally risome indicator at high le-
us. This has reduced market volatility, making the 50% from its October 2022 Bubble in making: Investors are wary metrics could stretch even more in the coming months. REUTERS Capital Economics analysts vels, reached 75% in Janu-
market more stable for small-cap stocks,” said low. The tech-heavy Nas- also note that the current ary 2000, just months
Kotak Mutual Fund. The fund house believes that daq Composite index has over five years leading up tificial intelligence,” said rally is being fuelled more before the market peaked.
earnings growth of small-caps is expected to gained over 70% since the to its peak in 2000, accord- Sameer Samana, senior by solid earnings outlooks It recently stood at 44.5%,
improve and companies are poised for robust end of 2022. ing to a BTIG comparison global market strategist at rather than growing valua- compared to its historical
earnings growth. As the economy continues to While various metrics of the two stocks. the Wells Fargo Investment tions, a sign that funda- average of 37.5%.
AI fever, coupled with a
expand, smaller businesses are well-positioned to show stock valuations and Valuations have grown Institute, noting the same mentals are more of a driv- While an AI bubble is
benefit, potentially supporting valuations, it said. investor exuberance have as well, though many tech resilient economy and uncertainty about the er this time. not a foregone conclusion,
yet to hit peaks reached at champions appear to be in stronger earnings, lifted eventual long-term Forward earnings per many investors are wary
Flows capped the turn of the century, the far better financial shape the S&P 500 index to winners. share in sectors containing that metrics could become
Kotak MF added while small caps performed well similarities are easy to than their dot-com coun- fresh records this year today’s market leaders — even more stretched in
in the past, it is important to set realistic spot. A small group of mas- terparts of the late 1990s following a run of more Similar to dotcom boom tech, communication ser- coming months if U.S.
expectations. The returns seen recently are sive tech stocks, including and early 2000s. Other than 50% from its Echoing the dot-com vices and consumer discre- growth remains robust and
unlikely to continue at the same pace and may AI chipmaker Nvidia, sym- measures, such as investor boom, the information tionary — have been grow- tech stocks continue charg-
October 2022 low
become more normalised. bolise today’s market, re- bullishness, have yet to technology sector has ing faster since early 2023 ing higher.
Hence, avoid the temptation to over-allocate calling the “Four Horse- reach the frothy heights of swelled to 32% of the S&P than the rest of the market, “There are a lot of simi-
based on the recent performance, it added. men” of the late 1990s: the turn of the century. to October 2002. The S&P 500’s total market value, a Capital Economics analy- larities,” said Mike
Kotak MF restricted flows into its small-cap Cisco, Dell, Microsoft and The concern is that the 500, which doubled in a si- the largest percentage sis showed. O’Rourke, chief market
scheme from March 4, joining Nippon MF and Intel. AI-driven surge will end milar timeframe, collapsed since 2000 when it rose to By contrast, expected strategist at JonesTrading.
Tata MF in limiting investments. Fund managers The dizzying run in the same way as the dot- nearly 50% in that period. nearly 35%, according to earnings in the sectors “When you have a bubble,
found it challenging to handle continuous flows shares of Nvidia, which com boom — with an epic While Internet stocks LSEG Datastream. Just grew at a similar pace to usually it’s rooted in ...
amid elevated valuations. gained nearly 4,300% in a crash. After nearly quadru- such as Amazon survived three firms, Microsoft, Ap- the rest of the market in some true, positive, funda-
In February, the fund house said in a notice recent five-year period, pling in just over three and eventually thrived, ple and Nvidia, represent the late 1990s and early mental development that is
fresh subscriptions through lump-sums will be stirred memories of how years, the Nasdaq Compo- others never recovered. over 20% of the index. 2000s, while their valua- behind it and that creates
restricted for each investor to ₹2 lakh per month. network equipment maker site plunged almost 80% “No one exactly knows However, tech stocks tions soared faster than for that enthusiasm for people
(The writer is with The Hindu businessline) Cisco surged about 4,500% from its March 2000 peak what will happen with ar- are more modestly valued other stocks. to pay any price for things.”

To cut or not to cut

Inflation is down in Europe but ECB
in no hurry to make more rate cuts
Associated Press der to wring out of the eco-
FRANKFURT nomy and would ding their
credibility into the bargain.
Inflation in the 20-nation High rates aim to
eurozone crept lower to squelch inflation by mak-
2.5% in June, but remained ing it more expensive to
stuck above the level fa- borrow money to buy
vored by the European goods or invest in new fac-
Central Bank (ECB), which tory equipment. That re-
is in no hurry to add more lieves pressure on prices —
rate cuts after a first tenta- but can also dampen
tive reduction in its bench- growth. That’s the tight-
mark rate. rope the ECB and the Fed
The figure released Treading cautiously: Central banks don’t want to find inflation is are trying to walk: make
Tuesday was down from more stubborn than they thought and reverse course. REUTERS sure inflation is contained,
2.6% in May, welcome without pushing their eco-
news as inflation continues suggest inflation may re- U.S. Federal Reserve holds nomies into recession.
to fall from its peak of main stuck between 2% off on cutting rates from ECB President Christine
10.6% that robbed consum- and 3% for a while yet. In- current highs. The central Lagarde said the bank
ers of spending power and flation in services prices banks don’t want to belat- needed to make sure infla-
mired the European eco- ran at 4.1%, unchanged edly discover that inflation tion was firmly under con-
nomy in months of near- from the month before. is more stubborn than they trol before cutting its key
zero growth. The ECB’s caution in thought and reverse rate again after a first,
Wait and watch: The U.S. central bank still needs more data before cutting interest rates to ensure that recent weaker inflation readings But key indicators Tues- making sure inflation is un- course — a mistake that quarter-point cut on June 6
give a true picture of what is happening to underlying price pressures, Federal Reserve Chair Jerome Powell said on Tuesday. REUTERS day remained at levels that der control comes as the would make inflation har- to the current 3.75%.

Italian firms bridge skills gap with own schooling

NEWS ANALYSIS HR, Organisation & Sys- shipbuilder Fincantieri , learn something new ... shipyard of the north-east-
tems Officer Gianluca and State railway group you can’t miss a chance ern port of Monfalcone.
Grondona told Reuters of Ferrovie dello Stato (FS) like this,” he said.
Reuters the group’s programme. are taking matters into Webuild aims to source Numbers dilemma
ROME Skill mismatches are an their own hands. On top of from its work academies Italy faces a problem not
international problem but apprenticeships, FS liaises some 3,000 people out of only of skills but also of
After years of informal for Italy, with the lowest with universities and 10,000 new hires it envis- numbers. It has one of the
work as a farm labourer, employment rate in the EU schools to offer students ages over the next three world’s oldest populations
Federico Olivieri, 29, could and productivity that has more targeted courses. years. The academies are and lowest fertility rates at
not believe it when a huge stagnated for more than close to its infrastructure 1.2 children per woman
building site appeared next two decades, it is acute. Digital, AI job skills work sites, mainly in and the baby-boomers of
to his home in Sicily with “As the company changes, southern regions where the 1960s are now retiring.
training on offer for many Vacancy rates skills change and we need unemployment is high. This means in the next five
specialised jobs required. Despite a large pool of peo- specific capabilities, partic- Lorenzo Esposito Cor- years, Italy will need 3.1 to
The programme by Ita- ple seeking work or out- ularly when it comes to cione, a 19-year-old who 3.6 million new workers,
ly’s largest construction side the labour market, va- digital and artificial intelli- studied at nautical school business group Unioncam-
group Webuild is among a cancy rates stood at 2.5% gence-based jobs,” said in Genoa, is one of 80 peo- ere estimates.
growing number of ‘acade- in the first quarter of 2024, Adriano Mureddu, its Chief ple hired by Fincantieri af- By 2050, Italy will have
mies’ run and financed by in line with the EU average, Huge deficiency: Vocational schools fail to produce students with the right expertise. VIA REUTERS Human Resources Officer. ter being trained under its almost five million fewer
companies frustrated by data from European Union Mr. Olivieri joined We- ‘Masters of the Sea’ pro- people, and more than a
many job-seekers lacking statistics agency Eurostat most European countries, many young people are technologies, as Rome in- build’s programme this gramme. The programme third of them will be over
the know-how. shows. This compares with think-tank Prometeia high- still studying subjects with vests in EU-backed infras- year and now works with drew 17,000 applicants. 65, national statistics office
“We are being proactive 2.8% in France and 0.9% in lighted in a June report, lower market demand, tructure projects as part of tunnel-boring machines at “Without the course I ISTAT predicts. Younger
about the problem. If the Spain in the same period. and even those that there such as humanities, it said. its post-COVID recovery its site on Sicily’s eastern wouldn’t be here,” Mr. Es- blood is badly needed in a
skills aren’t there, then we Vocational schools and are fail to produce students The problem has be- plan, worth about €200 coast. “The courses are an posito Corcione told Reu- host of industries, from
will create them our- colleges are fewer and less with the right expertise. come more severe with the billion ($214 billion). incredible opportunity for ters at the end of his shift construction and tourism
selves,” Webuild’s Chief popular in Italy than in At the same time, too rapid development of new Big firms like Webuild, those who are willing to as an electrics fitter in the to agriculture.
CM A IN-X
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