FIIs, Rupee and Market Trends: Nandan Chakraborty on what’s next for India

"I do not think valuation was the problem. Most of the questions were on rupee and the second was the whole growth based on both double barrel that is consumption and capex, how that plays on in the next one year, because both tripped up in the last one year," says Nandan Chakraborty, DAM Capital Advisors.

Let us talk about what we have on hand FIIs are back. If they are back, are they here to stay because what we have seen historically that FIIs, when they come back, they do not come back for like one day or two days, it is a trend. When they sell, they sell for a couple of weeks and months and when they buy, they buy for a couple of weeks and months.
Nandan Chakraborty: So, about 12 years back approximately or maybe more, 15 years back, I wrote a piece which became famous actually among all also, which was about different types of investors in India represented by different types of sharks.

So, there is the bull shark, let us call, for example, capital or whatever, which goes round and round and round before settling on a person.

Then, there is the white-tipped shark, which basically can figure out signals from hundreds of kilometres away, so on. I would not go into it. But basically, there are different types of FIIs. So, to generalise is not easy but to be able to put it into three buckets, first one is the global funds, number two is the emerging market funds, and the third is the India-dedicated funds. So, out of these three, the largest one that is applicable to India in terms of drivers is the emerging market funds. So, they have different drivers.


This entire view which everyone had that India was expensive for a foreign investor, the tax in India for a foreign investor is high and valuations were not that attractive. Have those concerns got addressed?
Nandan Chakraborty: So, when I met them, so over the last 30 days, I met in Singapore and London, so the basic funda was that as long as the rupee is unstable, we do not want to enter India because we do not want to catch a falling knife. So, the rupee is still not near its REER, which is 89 odd. So, nearer to that, there will be one thing.

The second is on valuations, people are more or less comfortable, except for pockets over a valuation that we all know, there was not too much problem on valuation at the time that I went because we are already at a 15% discount to the US and the dollar is falling, the US markets are falling, and so on.

So, I do not think valuation was the problem. Most of the questions were on rupee and the second was the whole growth based on both double barrel that is consumption and capex, how that plays on in the next one year, because both tripped up in the last one year.



It is always about understanding the relative mood in the world. The relative mood in the world after US markets have peaked out, the flows are going back to China, the flows are going back to Europe. Do you think in the near term while US markets may be hitting a peak, India is unlikely to be a disproportionate recipient of the flows and large part of the flows will go to Europe and China and India may be a relatively better performer but absolutely the best market for 2025 could be China or somewhere in Europe?
Nandan Chakraborty: Unlikely. India is the most structural play in the world as of this moment and that is not going to go away, so it is a question of waiting.

So, as I said, there are three types of players. So, as far as the global players are concerned, their EM allocation is one part of it, but the bigger one is if there is a suck back out of US, because US is sort of exceptionalism and a lot of it is in tech, and so on, so that will go to Japan and Europe, that money is not coming to EMs as much. The second category, which is the biggest category that we are concerned with, which is the EM allocation, it has moved to China in the last couple of months, but there has been nothing on the ground in terms of China.

So, once Chinese valuations also settle somewhat, it is not a structural story and everybody understands that. So, people are waiting for the consumption and capex to show on the ground, which has already started, to re-enter India.
So, I do not think that is a real problem. People want structural plays in India. And the third one is the India-dedicated funds, which we do not have too much of a choice, so they keep investing in India and get a little into cash and out of cash and so on.


So, if one has to invest into India now, with the view that flows are going to be stable, IPOs would be reasonable, promoter holding which was coming on a daily basis into the market that also will die down. Are we in for absolute better half in the second half of this year first half was marred with volatility and no return, can we see strong double-digit returns in the second half of this year, from April to December or from May to December?
Nandan Chakraborty: Maybe June to December. See, there were two types of issues in terms of FIIs re-entering India. The first type said that basically we will re-enter as long as the rupee stabilises because the structural things are already in place, that was one type of investor. The other type of FIIs investor said that, listen, we will wait till there is clarity on tariffs.

Till then, we do not want to, so that is what I said is the bull shark versus the white-tipped shark and so on. They say, let us wait, when risk-return is sort of favourable in terms of the Trump factor, we will enter then. Let us have clarity on that first. So, these are the two camps of the ones who are hesitant.


I was just going through your note and it was very significant given the fact that there was a huge shift when you talk about the budget, where the government shifted focus from build India to consume India, if I could put it in that way from a capex-led investment or capex-led vision, now it is consumption-led vision. Do you think this sort of push to boost consumption will actually bear fruits when you start the new financial year?
Nandan Chakraborty: See, what happened was, obviously the government realised that central government capex is not the biggest driver of, in this period, at this juncture of the capex of India, because there are three parts of capex – one is central government, one is state government, and one is private sector or the households and private sector.

So, these are all different drivers. So, what I think FIIs is more or less agreed to that that this is not the best time to push central government capex, which is why it continued to push a lot into states, which did not spend because of FRBM and because there were a lot of elections, so that will start this year.

And private capex and household capex, a lot of it is in new areas, not the traditional core areas, and a lot of that is also into realty.

So, there are different drivers for that. FIIs more or less understood that capex is not the main pain point at this point in time as consumption is.

So, if there is a problem, you address what is the current problem rather than what will happen in the long term. Everybody understands that the ICOR of capex in terms of its incremental output into GDP is far more in the long term, so capex will come back. It is inevitable. For the current moment, consumption was a problem, which is why there was an impetus there.