In 1965, the Intel co-founder Gordon Moore predicted that the number of transistors that would fit on a computer chip would double every two years. Essentially, this meant that computing devices would become faster, smaller and cheaper over time. That prediction came to be known as the famous Moore’s law and laid the groundwork for the digital revolution in Silicon Valley and elsewhere for decades. That, of course, was until the world discovered the so-called Huang’s law, named after the Nvidia CEO Jensen Huang, who has led the tech giant’s phenomenal rise to become an AI powerhouse.
Thousands of miles away from Silicon Valley, India is now trying to catch up with the AI boom. This week, India’s semiconductor ambitions grew larger as the Union Cabinet approved a fresh Rs 1.28 trillion ($13.3 billion) incentive programme for the sector. This comes five years after the launch of the original $10 billion semiconductor mission.
The new package expands support beyond chip fabrication to include chip design, intellectual property and research and development. At first glance, the announcement may look like another investment story. Look a little closer and it becomes something much bigger.
For the past few years, India’s semiconductor ambitions have largely been measured by the number of factories it could attract. This week’s package suggests the government is now paying equal attention to everything those factories need around them.
A semiconductor plant may be the centrepiece of the industry, but it is never the industry by itself.
A modern fab depends on companies supplying specialised manufacturing equipment, silicon wafers, industrial gases and ultra-pure chemicals. Once chips are produced, many are sent elsewhere for assembly, testing and packaging before they finally reach electronics manufacturers. Around that sit design companies, software firms, universities and research laboratories that develop new technologies and train the engineers the industry depends on.
The government’s latest package reflects that reality.
Alongside fabrication, the new programme extends support to semiconductor equipment, materials, chemicals, gases, design and research. It is an acknowledgement that attracting a factory is only the first step. Building a supply chain around it is what makes the investment sustainable.
That is also the slower part of the journey. Factories can be approved with a policy decision, but ecosystems grow differently. Suppliers invest only when they see enough customers. Skills take years to build. Research cannot be accelerated simply by increasing spending. Over time, each new company makes it easier for the next one to arrive. The numbers announced this week hint at that transition.
With 12 manufacturing projects and 24 design projects already approved, India’s semiconductor programme is gradually expanding beyond individual investments towards building different layers of the industry at the same time.
That shift may ultimately matter more than the headline figure. Countries that dominate semiconductor manufacturing rarely do so because they have one successful factory. They do so because hundreds of specialised businesses operate around those factories, making the ecosystem deeper and more competitive with every new investment.
The Rs 1.28 trillion package cannot create that ecosystem overnight. What it does suggest is that India’s semiconductor policy is becoming broader. The focus is no longer only on bringing factories to India. It is increasingly about giving those factories enough reasons to stay.
A Different Conversation
Sticking to technology news, most of India’s top IT companies have announced their first-quarter results. And, to sum up, here’s what they show: business remains uneven and clients are still cautious.
At the same time, all three companies highlighted AI-led deals, healthy order books or areas where demand is beginning to improve. The financial performance reflected that balance.
TCS reported 14% year-on-year revenue growth to Rs 72,275 crore, topping analysts’ predictions, while net profit rose about 5% to Rs 13,349 crore.
HCLTech’s revenue grew 14% to Rs 34,579 crore while net profit increased 20.3% to Rs 4,626 crore, exceeding market forecasts.
Wipro missed forecasts as revenue rose only 10.6% to Rs 24,478.6 crore and net profit remained broadly unchanged at Rs 3,352 crore.
Tech Mahindra’s revenue jumped 17.7% year-on-year to Rs 15,712 crore, exceeding analysts’ estimates. India’s fifth-largest IT firm reported 28.5% rise in profit to Rs 1,465 crore, missing estimates.
Infosys will announce its Q1 results next week.
The numbers, however, were only part of the picture.
TCS finished the quarter with a $9.5 billion order book. Chief executive K Krithivasan said geopolitical and macroeconomic headwinds were still affecting demand, but he also pointed to strength in banking and financial services and said manufacturing and life sciences could improve during the second quarter.
HCLTech reported record quarterly net-new bookings of $2.4 billion. It also retained its full-year constant currency revenue growth guidance at 1% to 4%, indicating uncertainty.
Wipro’s commentary was similarly measured. It reported $1.6 billion in large-deal wins, up 12.9% from the previous quarter, but guided for IT services revenue in the current quarter to range between -1.5% and +0.5% in constant currency. Strong deal activity, in other words, has not yet translated into a more confident near-term outlook.
Artificial intelligence appeared in all the earning discussions, but in a noticeably different way.
TCS said its AI business has reached an annualised revenue run rate of $2.6 billion and highlighted another AI-led transformation deal.
HCLTech said its advanced AI business grew 62.1% year-on-year in constant currency to $171 million, while chief executive C Vijayakumar said enterprises were increasingly choosing the company to lead AI-led transformation programmes.
Wipro said clients were moving beyond technology modernisation and using AI to improve productivity, resilience and day-to-day operations.
Taken together, the earnings highlight a broader pattern.
This quarter, discussions about AI-led deal wins, healthy order books and improving demand in some businesses sat alongside the familiar references to geopolitical uncertainty, cautious spending and uneven client demand.
That distinction matters because earnings capture what has already happened.
Management commentary often offers the first clues about where companies see opportunities and where they continue to exercise caution.
The quarter does not point to an IT sector free of uncertainty. But it does suggest that India’s largest software companies are discussing AI-led business, strong deal momentum and signs of improving demand in parts of the business alongside the uncertainties they continue to flag.
That is a subtle shift, but one worth paying attention to.
Holding Steady
Let’s now move on to macroeconomic developments. When the Reserve Bank of India left interest rates unchanged last month, it pointed to inflation, growth and an uncertain global environment in explaining its decision. At the time, many economists believed a rate hike this year was a real possibility. Recent developments have made that view less certain.
While crude oil prices have come off recent highs, the latest inflation data did not appear especially reassuring. Retail inflation rose to 4.38% in June, moving above the RBI’s 4% target for the first time in 17 months. Higher food and fuel prices were the main drivers of the increase. Wholesale prices touched 9.87% year-on-year in June, from 9.68% in May, driven mainly by a 27.41% rise in fuel and power prices and a 34.75% increase in petroleum and natural gas prices.
Yet the market’s reaction told a different story. Several economists concluded that the rise in inflation was unlikely to force the RBI into an immediate rate hike. Citi dropped its forecasts for two more rate increases this year, while ANZ, Nomura, SBI Economic Research and STCI Primary Dealer argued that the central bank now has greater room to wait.
Why? Part of the answer lies beneath the headline number. Economists noted that inflation averaged 3.9% during the April-June quarter, while underlying or core inflation remained close to 4%. Taken together, many economists argued that the latest increase reflected temporary supply-side pressures rather a broad build-up in underlying inflation.
Then came another piece of the picture. Inflation in the US slowed more than economists had expected. Consumer prices fell on a monthly basis for the first time since 2020, while core inflation eased. US Treasury yields fell after the inflation data. The data gave the Federal Reserve a little more room to wait, although markets continue to expect another rate hike later this year.
None of these developments, viewed in isolation, would necessarily have prompted economists to rethink their outlook.
Together, however, they help explain why economists have become less convinced that another rate hike is imminent.
That does not mean the debate is settled. Food prices remain vulnerable to the progress of the monsoon, crude oil prices continue to depend on developments in West Asia, and the RBI has repeatedly indicated that it will respond to incoming data rather than follow a predetermined path.
This week’s developments do not tell us what the RBI will do next. They simply explain why a growing number of economists believe the central bank has more room to wait before deciding whether further tightening is necessary.
Waiting for Dollars
While a rate hike by the RBI remains on the table, the central bank also has another headache to deal with—defend the rupee. To do so, the RBI had unveiled a scheme last month to attract more foreign currency into the country through Foreign Currency Non-Resident (FCNR) deposits. At the time, some market estimates suggested the scheme could eventually bring in anywhere between $40 billion and $70 billion. The early signs, however, have been more measured.
The RBI recently met commercial banks to review the progress of the FCNR deposit scheme. According to Barclays, lenders reported strong interest from overseas Indians, but that interest has yet to translate into the scale of inflows many in the market were expecting. In a research note published this week, the investment bank, quoting reports, estimates FCNR inflows so far at around $5-6 billion, with roughly $2 billion mobilised by State Bank of India.
The report does not suggest the RBI’s measures have failed or that the final outcome is already clear. Instead, it asks a narrower question: why have inflows started more slowly than many expected?
Barclays argues that there is no single explanation.
Many comparisons have been drawn with 2013, when India raised around $34 billion through a similar FCNR window. But today’s backdrop is very different. US interest rates are much higher than they were then, making dollar deposits outside India far more attractive than they were during the earlier scheme.
Also, overseas Indians today tend to hold more diversified portfolios than they did in 2013. Their wealth is spread across a wider range of assets, which may leave less readily deployable liquidity available for FCNR deposits.
The structure of the scheme presents its own challenges. Some investors expected leveraged arrangements to boost returns, but Barclays says those structures have proved more difficult to implement than initially anticipated. Banks have also cited uncertainty around leverage and GIFT City structures as early constraints on mobilisation.
The deposits themselves create another consideration. Although FCNR deposits usually run for three to five years, depositors can generally withdraw after one year, subject to bank policies and applicable penalties. Because the RBI’s swap cannot simply be unwound at the same time, banks are left managing the resulting maturity mismatch.
The report also highlights that FCNR deposits do not directly strengthen the rupee. Banks receiving these deposits swap them with the RBI. The immediate benefit therefore comes not through the exchange rate itself but through a stronger balance of payments, as India secures a stable source of foreign-currency funding over several years.
The report also widens the discussion beyond FCNR deposits. While mobilisation has been slower than expected, foreign portfolio inflows into equities and bonds have moved into positive territory in July. On the flip side, demand for dollars from Indian importers remains elevated, as higher crude oil prices push up the country’s import bill.
The report is a reminder that RBI’s measures represent only one part of a much larger picture. FCNR deposits may strengthen India’s external position over time, but portfolio flows, importer demand for dollars, oil prices and broader global financial conditions will continue to influence the rupee’s movements.
Expectations rose quickly. Barclays’ assessment suggests the outcome may simply take longer, and perhaps prove smaller, than many investors first assumed.
Market wrap
India’s stock market benchmarks climbed this week, thanks mainly to a jump of more than 1% on Friday. The Nifty 50 rose 0.5% while the BSE Sensex ended 0.8% higher this week, after trading in a narrow range.
In the broader market, the small-caps fell 0.6% and the mid-caps slipped 1%, ending their recent weekly winning streaks. As many as nine of the 16 major sectors logged weekly gains.
The IT index gained 4.3% this week, as TCS, HCLTech and Tech Mahindra posted strong revenue growth for the first quarter. TCS was the top Nifty performer as it surged 9.7% to record its best week in almost six years. Tech Mahindra was at No.2, jumping 8.1%. HCLTech climbed 3.4% while Infosys, which will report its earnings next week, ended 2.7% higher.
Financials and autos were among the other big gainers. Bajaj Finance, Kotak Mahindra Bank and ICICI Bank all rose more than 3% each. They were followed by Bajaj Auto, Eicher Motors and Mahindra & Mahindra.
Oil-to-telecom conglomerate Reliance Industries, which said its promoter group lifted their stake in the April-June quarter to 50.48% from 50% before, gained 1.5% this week.
At the other end of the market, Larsen & Toubro bled the most. The engineering giant fell 3.3%. Metals, healthcare and consumer goods stocks were also mostly lower. Tata Steel melted 2.8% while Hindalco lost 2.4%. Dr Reddy’s Labs slipped 2.7%, after plunging 9.3% last week following a disruption in supply of generic semaglutide. Bajaj Finserv, Grasim, Tata Consumer, Trent, Nestle, Max Healthcare and Cipla were among the other major laggards.
Other Headlines
- Consumer court in Chhattisgarh orders Maruti to replace car for E20 fuel damage
- Aditya Birla Renewables to buy Sprng Energy from Shell for $1.8 billion
- SBI Funds Management’s IPO subscribed over 34 times
- Shapoorji Pallonji Group raises $650 million through dollar debt issue
- Jio Financial Q1 net profit rises to Rs 830 crore from Rs 325 crore a year earlier
- ICICI Lombard General Insurance Q1 profit drops 46% to Rs 403 crore; shares slump
- HDFC Bank unit HDB Financial’s Q1 net profit rises 48% to Rs 785 crore
- HSBC upgrades Indian equities to ‘neutral’ from ‘underweight’ on easing oil prices, FPI flows
- NSE gets SEBI approval to launch derivatives on Nifty India FPI 150 index
- SEBI tightens conflict-of-interest safeguards for chairperson, members with recusal framework
- SBI hires former LIC finance head Sunil Agrawal as CFO
- India’s balance of payments deficit at $4.4 billion in May versus surplus of $4.4 billion year ago
- Swiggy, HPCL to pilot on-demand LPG cylinder delivery via Instamart
- Ather Energy to raise Rs 1,200 crore from Hero MotoCorp, others
- Indian Gas Exchange files DRHP for IPO; parent IEX to cut stake
That’s all for this week. Until next week, happy investing!
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