FII Sentiment Towards India โฃhinges on Earnings Enhancement, Says Gautam Trivedi
Recent discussionsโฃ with global investors reveal a significant underweighting of India within emerging market portfolios, according to Gautam Trivedi. He reportsโฃ that eight to nine out โof ten investors he encountered are holding positions in India that are 200-250 basis points below its weighting in the MSCI Emerging Market Index. This translates to approximately $17 billion in Foreign Institutional Investorโ (FII) โขselling year-to-date, causing India’s weightage to fall from 21% last year to 15.7% currently.
Despite India’s historically high valuations,Trivedi clarified that valuation alone isn’t the primary deterrent for FII investment. The โขkey issue is an 18-month earnings slowdown. He noted that India currentlyโข trades at 22-23 times one-year forward earnings – a level comparable to the S&P 500. However, US investors view the S&P 500 โas expensive at that multiple, while a similar valuation inโค India doesn’t raise the same concern.
Trivedi expressed optimism about a potential turnaround, stating that โฃimproved earnings are crucial toโค attracting renewed FII investment. โฃHe pointed to โpotential catalysts like recent GST cuts and strong urban sales data from the pastโฃ five โขweeksโข as reasons for hope.
He also highlighted the robust financial activity in the US, noting that dividendsโ and share buybacks are โprojected to inject approximately $1.7 trillion into the economy, boosting liquidity. trivedi further emphasized that the strength of the US market extends beyond the “Magnificent Seven” tech companies, encompassing a broader base โขof over 4,000 listed companies, plus significant private sector activity not captured in current figures.
Investor โขconcerns regarding the future of the Indian IT sector were also prominent in discussions, especially in light of H-1B restrictions and the rise of Artificial โคIntelligence.Trivedi noted theโฃ underperformance of IT stocks over the past โfiveโค years and suggested โa need for reinvention,โข citing TCS’s โinvestment in data centers as a positive step.
There โคwas also considerable interest in India’s potential within โฃthe AI ecosystem, specifically regarding power generation and transmission infrastructure needed to support โAI growth.
looking ahead to FY26 and FY27, โขTrivedi anticipates a potentialโ recovery driven by expected rate cuts, GST reductions, โand planned pay hikes for Public Sector Undertaking (PSU) employees. He believes these factorsโข could contribute to โคearnings improvement starting in the secondโค half of theโ current year and continuing into FY27, ultimatelyโ revivingโค FII confidence in โthe Indian market.
