Zerodha co-founder Nithin Kamath on Thursday raised a small alarm over the fading interest of Foreign Portfolio Investors (FPIs) in the Indian markets with a post on X (Formerly Twitter).
Kamath on April 9 shared a sobering summary from a recent discussion with an industry source on whether foreign investors are still interested in India.
The verdict suggests that India’s ‘exposure’ to geopolitical volatility, a “rich” valuation-to-growth gap and a lack of genuine Artificial Intelligence (AI) plays are driving global investors away from New Delhi.
‘Geopolitically exposed’
Kamath’s post highlighted that India is increasingly being viewed as “geopolitically exposed.” While Kamath did not unpack as to what this may mean in the Indian context, netizens believe that the ‘geopolitical exposure’ refers to India’s huge exposure to longer term oil shocks as a fossil fuel reliant economy.
“Interest has pretty much died out. India is seen as geopolitically exposed, especially to an oil shock. There are no real AI plays. Valuations are rich. And the rupee situation doesn’t help,” Kamath noted in his post.
The ‘taxing’ problem
A pivotal point in Kamath’s post was the current domestic tax regime. He pointed out that the Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG) structures, coupled with the recent hike in the Securities Transaction Tax (STT), have made India a “less attractive” destination compared to other emerging and developed markets.
Fixing these tax hurdles, Kamath argued, is “low-hanging fruit” if the government intends to lure foreign capital back to Indian shores.
Kamath’s concerns align with the grim data flowing from the National Securities Depository Limited (NSDL)
FPIs have been on a relentless selling spree. While specific cumulative net outflows for all of April are not fully finalized, early April saw a mixed trend with minor outflows, including a net sell-off of ₹2,811.97 crore on April 8th. Following a record-shattering March where billions were pulled out of domestic stocks.
The Indian Rupee’s recent decline has further soured the ‘Total Shareholder Return’ for foreign funds when converted back to USD.
While India bleeds capital, markets like Japan, Taiwan, and South Korea are seeing a surge in inflows. Analysts interviewed by Reuters suggest that these markets offer a more direct play on the Artificial Intelligence (AI) and semiconductor boom.