These are the edited excerpts of the interview.
Q: First we were just looking at ourselves and looking at Wall Street and the outperformance over there, and now we have to start looking over our shoulders and look at China, because that market started doing well as well. What have you made of the selloff. The selloff has continued here in India. Is it time that foreign investors start buying in? Have we reached those levels in terms of valuations?
A: There is no clear answer to that. As long as the 10-year yield doesn’t settle, as long as the dollar doesn’t settle, as long as the rupee doesn’t depreciate much, significantly, we will continue to face these headwinds. But outside of that, India was a beneficiary of this for the last three years – go three, four years back, China used to be what 33% in MSCI, and again add Taiwan, another 12% this block used to be 45% and India was somewhere between 13% and 15%. India got up till 20% and China came down to like 20-25%.
Some of that is reversing because China was very cheap and on the margins, especially with the Deepseek. This has rekindled hope. Chinese President Xi Jinping is meeting the corporate investors and business people as well. So this is kind of bringing back the hopes that China may not be as against the capitalism as earlier thought out to be. So all this combined, plus Indian market was good, fairly valued, good story, but there is no surprise there. There is no big trigger. It is good, but not for the time being.
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So if you are invested, that is fine, but otherwise short term money might be chasing China for the time being and US. So it is a popular trade. I don’t know whether it will be right or wrong, but currently the trade is, go long US, long China.
Q: With regards to the foreign institutional investors (FIIs) flows, the rupee, at least in the near term, is showing some signs of stability, which we had spoken about last time around. Do you think with the kind of stability that we are seeing of late, the FII selling has been very relentless here in India? Do you think there is a point that maybe they slow down a little bit, at least in the near term, and maybe the second half of the year could be better with regard to FII flows, and also in the Nifty 500 companies – you had made this point that there is plenty of froth in in the broader markets. But if the earnings season just concluded, which wasn’t so bad, because the earnings growth was roughly around 8.5% – not great, but at least better than what we saw in the previous two quarters. So a quick word on the flows, as well as on the broader market share in India.
A: Keep the systematic investment plans (SIPs) going. My opposition to the whole concept was that 80% of Indian SIPs were going to mid and small. That’s the wrong concept. As a broad idea, 70% should go to large cap, and then remaining 30% you can do whatever – debt funds, mid, small, whatever. If people think mid and small are going to outperform large cap in 20 years, I don’t believe, but that is my thought, and that is historical thought till 2019 – that is what the data suggests. I am not selectively picking data from selective years. That is from 1994 since inception of Nifty. So that has been my thought, but let’s see how it plays out.
But if it is in large cap SIPs, 12% is not going anywhere. Keep it going. That is one story.
Nifty in 1994-1995 when it started till 2019 – Nifty 500 is below Nifty 50. So Nifty 50 is 12% to 13%, including dividends, Nifty 500 is around 10% to 11%, which means, collectively, it underperforms by 1-2%.
And third, add to this the flurry of IPOs, which are coming, which are all offered for sale. There is nothing. There is no 100-200 bagger here. It is all juiced up IPOs. So all of this makes me believe that only the big gets bigger. That is the India story. So stay with the Nifty 50.
On to the rupee debate – and I was surprised, the Reserve Bank of India (RBI) again did the intervention last week and try to hold the rupee. The point is, RBI will have to make up the mind as to what the level it is comfortable with, by sense, it should be 92 to 95 anytime. And by the way, what is there to protect? The export or tariff war is just about to get unleashed. It will be very competitive. China will devalue the currency. I don’t know why are we getting into this tariff currency war? We will be on the receiving end of this otherwise. And by the way, US will negotiate tariffs. I am sure this will be negotiated as well. So that is my take.
By the way, FIIs – if they have to buy, they buy at any price. So I am sure if the growth comes back in to India, which is – one view is that it is pretty cyclical, and it will come back. They will come back. They come back at any price. And it is just that maybe 2025 is not the year, or maybe 2024 was not the year. That is how I believe on this.
Q: What will make you change your view? Or what would make you this shift from long China, long US move back towards, perhaps long India, largely because valuations have seen some bit of moderation. And we have also seen some stocks coming back into comfort zone. What are your thoughts here?
A: Nifty is already at a good level, by the way. You can’t try and exactly catch the bottom, but Nifty is already right there where it should be. And if the earnings pan out next year, maybe 12-14%, it can hover between 23,000-22,000 and 26,000-28,000 – depends on the multiple.
Real factor to watch there is what is the nominal growth in the economy. If that is more than 10% and sustains, that is good. If that suffers a bit, there will be a bit of a rethink.
Second is the credit growth in India has come to 11-12% if RBI is able to just manage this economy in the manner that monetary policy and fiscal policy work in tandem, and the credit growth comes back to 15-18% that is the thing to watch.
I have always maintained a positive stance on India. It is just on the margins. Where do you go underweight, overweight. That is what the world does. If $100 start from US, $70, go to US, $20 go to Europe, $10 go to emerging markets – within this $10 about $2 comes to India. That is the 20% allocation. So about $1 trillion, about $20 billion goes to India. That is the long-term equation, that is how the numbers stand. On the margins, it can be $25 billion in some years, it can be $15-10 billion in certain years. We have to take this flavor with the way it is.
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The bigger risk and I was little shocked when I heard this on your channel – you were interviewing the Axis management. They said about $55 billion of IPO listing/QIPs/promoters selling is expected in 2025.
I could see the discomfort where you were trying to prompt a question like, is this a good thing? And the answer was, there is a good thing, as long as SIPs keep coming. This is a bit too much. I don’t know whether that can keep going and I also remember a very fantastic interview with Sanjeev Prasad of Kotak. Almost 50% of the money – this data is not public and I am thankful to him that he made that public. 50% of the money, $45 billion came in 2024 that is equal to 2021-2022-2023 combined. I don’t know how those investors are going to behave. So those are the equations – that is what is facing. So FIIs might be capping returns on Nifty, but that will come eventually. There is no confidence gap there. Rest 450 – is the issue. It is the domestic selling issue that is happening.
For the full interview, watch the accompanying video
