India has been expensive market post COVID for last three years: Gautam Trivedi

"So, I said, over the past three years, India has been expensive post COVID. You have still put money. In fact, last year, they put cumulative $21 billion of net FPI flows into India. So, year-to-date why are you selling? And they said, finally, we do have an alternative," says Gautam Trivedi, Managing Partner, Nepean Capital.

Talk to us about what the FII or your friendly investor community had to say about India this time because it was also coinciding with the biggest spectator events of the five years, which way does the political kind of situation shapes up. So, what were the queries like?
Yes, I think the central question was with respect to will Prime Minister Modi secure a third term? So, I think that was one big concern that if he did not, what could a non-NDA government look like? Thankfully, those fears have been put to rest.

But the other question, of course, was with respect to valuation and I think one of the things, one of the pushbacks that I gave them was the fact that over the past three years India has been historically expensive, more so over the past three years versus China.

China currently is still at about 9 to 9.5 times calendar 25 PE, we are at 21, 21.5 times, so still a huge premium to China. So, I said, over the past three years, India has been expensive post COVID. You have still put money. In fact, last year, they put cumulative $21 billion of net FPI flows into India. So, year-to-date why are you selling? And they said, finally, we do have an alternative.

So, if you look at the pecking order this year of flows into Asian markets, we are at the bottom. So, we have gone from being on the top. I am talking of Asia ex-Japan. Now, if I include Japan, if you look at the absolute sheer numbers, so you have seen about $33 billion year-to-date of net flows into Japan. Korea is now about 16 billion. China is 12. Taiwan is about 6.5 or so. And we are negative 3.3. So, I think the fact that the Chinese government announced a whole bunch of measures to stimulate the economy has been taken very well and positively by foreign portfolio investors who were looking for an alpha, potentially an alpha generating market. So, I think that is the reason you have seen so much money going to China. I am not saying it is at the expense of India, but there are other options within Asia this year versus last year.


But, just going by the construct right now in India, I do not know what could cause correction and a meaningful one for the FIIs to come back to India in a meaningful way because, I mean, yes, the exit polls got it wrong, but there is government continuity, the big four portfolios are all with the same folks and more importantly, I mean, look at the gush of SIP flows that we are seeing into the markets. Every month, that is only showcasing an uptick. So, I cannot really pinpoint what would cause the markets to cool off from here?
I think it is a billion-dollar question. I do not think anybody has the answer to that because if foreign portfolio investors are not investing and if you look at the numbers year-to-date, as I said, FPIs are negative 3.3; DIIs, domestic institution investors, are 28 billion and counting, so that avalanche of money that is coming in from domestic pools of capital whether it is family offices, retail, and of course, retail coming in either direct or through mutual funds that is not stopping and I do not see that necessarily having any major correction.

The market, I think, had fears last week about the formation of the government, who would get what portfolio, but I think for the most part it is a status quo and as a result I think the mindset internally within investors in India is that policy continuity, political continuity, economic continuity will be there and as a result why should they deviate?

They do not seem to be disturbed by the fact that we are the most expensive large market in the world and let us be honest, even if they wanted to invest overseas, it is not easy to invest overseas. One is lack of understanding. Second is even if you do use your LRS money to invest overseas as a 20% tax collector at source, so I think they much rather use that for their children's education or foreign travel or other expenses versus investing in overseas markets where they have limited knowledge.

As you have the new ministers who have been taking oath for the cabinet, for instance, the IT minister was talking about strong technology foundation that will be laid. I just want to understand, is this a theme as a mega trend that you would look at, digitisation, AI, etc?
I think so. The question I was asked recently including the investors that I met in the US, what are the big themes here? And I think AI/data centres and they are all obviously linked together, is going to be a massive theme in this country.

So, the fact that the government has mandated all of the global social media companies to have the data stored in India, not offshore, has led to an explosive growth in the data centre business. And as a result, we have been tracking that sector. There are not too many ways unfortunately to play them in a pure play. So, the other way to look at it is to maybe play them via power companies because the reality is that if I look at a recent report by a bulge bracket firm with respect to the power consumption that is increasing because of data centre penetration, the absolute amount of power that data centres today consume in the United States, and I am using that as an example to extrapolate what will likely happen in India, it is currently only 3%.

By 2030, that number is expected to go to 8%. So, data centres will consume from 3% to 8% of the total power generated in the United States and I think you will see similar numbers in terms of growth in the power sector here as a result of that. So, while there are no direct listed plays today within the data centre business, maybe the power companies could be one way to play them.