Question
Looking at the valuation compression across the market, are we entering a phase where largecaps are the place to bet on in a big way, given the significant valuation divergence?
Answer:
Yes, of course. That would be one place. The large-cap space itself has come down to around 17.5 times, which is historically among the lowest multiples we have seen. Nothing stops the market from going to those levels. Way back in 2003, 2004 and 2005, it used to be 12-13 times. If conditions are challenging, nothing stops the market from going there again. At that time, there were events such as 9/11, and the economic conditions were really bad. The global financial crisis (GFC) happened later, but even before that, in 2002-03, things were quite challenging. Right now, however, the economy is booming. Look at GST collections and high-frequency data, which are showing 25% growth. Credit growth is at 18-19%. Corporate profit growth is also strong. If you look at the current quarter, it is running upwards of 30%. That could partly be a base effect, but even growth upwards of 20% is a very large number. You have also shown the contraction in price-to-earnings multiples. So, everything comes down to valuations and growth. These two things matter. That is the situation now: low P/E and high growth. What the Nifty will do over the next year will depend on how earnings shape up. This quarter is looking very good. Whether that will repeat over the next three or four quarters remains to be seen. Our research department estimates Nifty EPS at ₹1,250 for the current year and around ₹1,450 for the next year, 2027-28 (FY28). It is too early to say, but that is the trend visible right now. If the market starts valuing the next year, sometime around December, that implies around 15% growth. Typically, over the last three or four years, estimates have been cut. So, keep your fingers crossed, but that is a possibility. Then you have the other challenges, including global geopolitics. There is uncertainty around crude oil and the rupee, while at the same time, the economy is booming like never before. Prices have corrected, so I think we are scraping the bottom at this juncture. Can the market go a little lower? It could. If there is another strike or something and oil flares up to $100 or $120, those things can happen. The other big factor is the reversal in the artificial intelligence (AI) trade. People are now questioning the entire narrative around what AI can do. What the market or the system missed out on is that there is a physics of AI. It can do amazing things. Yes, it is magical, and it is going to stay. It will become predominant. But what about the economics of it? That is very different. It is a first-class technology with a third-class business model. Somebody said that that it’s a first-class technology and a third-class business model. I think the stock market will punish that. If the business model is bad, however well you do, if you are bankrupt, you are bankrupt. You can do magic, but if you are bankrupt, your value is zero. That is how I think this year will be redefined.
Question
The Nasdaq is down more than 10% for the third time in 2026. We have seen two other instances when it fell 10% and then recovered. This is the third time. Do you have a strong view on whether this is a more serious correction than the previous two?
Answer:
I have no idea. Earnings are booming there, so the economy is on a different footing altogether. Earnings growth of 27-28% is projected for the S&P 500 for the current quarter. I don’t want to make a prediction because AI itself might be in trouble, but the companies supporting AI, such as transformer manufacturers, cable companies and data centers players, are booming. Look at the numbers being announced by these companies. Anthropic has spoken about $900 billion in capex. Somebody is talking about a trillion dollars, somebody else about $2 trillion. All this capex is, at least for now, being rolled out. When you roll out that kind of capex, the downstream companies supplying these businesses, whether it is Nvidia or anybody else, are making money.
Question
One way to look at it is that the AI boom has been sucking in all the capital, to the exclusion of markets such as India. When that trade deflates a little and some air goes out, other parts of the world could benefit as money finds other opportunities. Do you believe that will happen?
Answer:
It should happen because of mean reversion in the valuations of American markets. Look at the share of the American market compared with the rest of the world. It had crossed 64-65% of global market capitalisation. Even now, there has not been any meaningful correction. That particular trend has become extreme, and money flows are also at an extreme. You buy at the bottom and make quick money; you sell at the top and make quick money. My sense is that we are at the bottom and America is at the top.
Question
There are a lot of voices saying this is the time to go global and invest globally. Listening to you, that would be the wrong way to approach it. Diversification is great, but if you are looking at it tactically, the time to be in India is now.
Answer:
Yes. If you look at 25 years of data, India has done as well as the US in dollar terms. The Nifty 500 in India and the S&P 500 in the US have delivered compounded returns of around 9-9.5% in dollar terms. India is one of the fastest-growing countries, and this is a country we understand. These are companies we understand. Yes, I should diversify, but if I go to China, I don’t know what to buy. It might be a cheap market. American companies are much more transparent. They have quarterly results, and we understand them. We consume a lot of their products. Microsoft and Google are as much household names as our own companies. So, to some extent, I would be very happy buying some ETFs for the Nasdaq and other markets. But I am a desi guy. I would remain desi.
Question
All your money is here in India?
Answer:
100% here. It has always been the case. Who wants trouble with the tax authorities?
Question
That brings me to the other question, which is equity taxation. We heard the Finance Minister acknowledge the debate and say that the government is hearing the views and will take them into consideration. She did not go so far as to say what will be done or when. What is your assessment?
Answer:
Whatever you have heard, I have also heard. For the first time, the Honourable Finance Minister has been kind enough to look at the capital markets, and she has been very clear. My only request is that whatever you do, do a clean-cut job. When you are removing capital gains tax, be very clear about how you treat short-term capital gains and dividends. Simplify it as much as possible. If there is no long-term capital gains tax, then there should be no long-term capital gains tax. Don’t bring it back through the back door. There are a whole lot of other instruments as well, including Category III funds.
Question
At a headline level, what, in your opinion, is the right way to approach this?
Answer:
In Singapore, for example, they have what is called a single-tier taxation system. Once you have paid corporate tax, whatever you pay out of that is not taxed again. But we believe in the double taxation of corporate profits. We pay corporate tax of 25% or whatever the rate is, and then whatever is paid out by way of dividends is taxed in the hands of the recipient. If I am in the 40% tax bracket, I pay tax accordingly. We also have short-term and long-term capital gains taxes, which are not there in that system.
Question
I am asking specifically in the Indian context. Where do we stand now? We want global flows to reverse, and we need to encourage them.
Answer:
Source-based taxation is one issue. Foreign investors are being taxed, and we need to look at global parity. But what is global parity, and which country are we taking as a benchmark? Whatever is done should be very clear and simple. It should not create further complications.
Question
The Finance Minister has also acknowledged that capital flows have reversed. We need to encourage them and make India more attractive in terms of post-tax returns. What about equity taxation for domestic investors? If it is done for foreigners, is there an argument that it should also be done for local investors?
Answer:
I would say let’s not make that argument right now. It is very complicated here because we have this double taxation system, and domestic investors have accepted it. So, right now, I think let’s do a clean job for foreign investors, if it can be done. I don’t know what the complications are around round-tripping and the other issues that the government is always concerned about. But, leaving those aside, I think we need to make a very clear statement for foreign investors. That will also help foreign nationals invest in India, an opportunity that has not been fully explored. Technically, foreign nationals have been allowed to buy Indian stocks, but the procedure is quite cumbersome. If I want to buy stocks in the US, I can do it within minutes. But if a US national or someone from another country wants to buy Indian stocks, the process is not that simple. There are many countries in the world. Apart from the five or ten big countries with vibrant stock markets, there are around 140 countries where people may not have developed stock markets but have opportunities to invest in India. They could invest in the same way Indian retail investors do. That is real money. What needs to be done? I think there needs to be a consulting assignment to figure that out. But do it cleanly and do it for foreigners right now. Don’t mix up the domestic issue with the entire exercise. Foreign investors do not want to get into the Indian tax system. They simply dislike having to deal with Indian tax authorities.
Question
Do you think this will happen? Nobody knows until we know, but do you think the probability is better now? Earlier, it was almost zero.
Answer:
Earlier, it was zero and one. Now, I would say the probability is more than 50-50.
Question
That something will happen?
Answer:
Yes, something will happen. Not immediately, but at the time of the Budget.
Question
So, you are expecting a Budget announcement? And do you think that will change the market mood?
Answer:
At the margin, it may. It is just a booster. I don’t think it is going to change everything. Everybody comes to make money, and you pay taxes only after making money. So, first, we have to figure out how to make money for them.
Question
You have said that wealth creation is about making money. In your 30 wealth creation studies, what have you learnt about how money is made?
Answer:
In whatever 30 wealth creation studies we have done, one thing we have learnt is that long-term returns—not one-year or six-month returns, but over five to seven years or 10 years—are equal to earnings growth. G is equal to R. Whatever the earnings growth is, that becomes the return because P/E multiples move between 18 and 20 times, so they have less impact. The impact is really on the earnings side. If your earnings are growing at 25%, I can tell you that you will make either 24% or 26%. The numbers will not be very different because re-rating or de-rating can make a difference of only 1-2% in the long term. So, earnings growth is what matters. The same principle applies to a country as well.
Question
How has the earnings growth story played out in India?
Answer:
Look at what happened in 2024-25 and 2025-26. Earnings in 2025-26 were flat, or perhaps grew by 4-5%. At the same time, we had the AI trade happening, and FIIs had already been selling for the last two years. They sold ₹3 lakh crore in 2024 and again in 2025. In 2026-27, the current year, they started with the handicap of low earnings growth and high P/E multiples, while domestic institutional investors were buying and the AI trade was attracting capital. They have now sold another ₹4.5 lakh crore. They have really smashed the market. But my sense is that things have changed over the last two or three quarters. I think it started around November-December, after the GST cut. The credit flow, which had fallen to less than 10% last year for whatever reason, has now come back to 19-20%. The GST cut and the improvement in credit flow have boosted consumption and brought real vibrancy back into the economy, which is now growing at around 7.5-8%. Over the last four quarters, economists have repeatedly underestimated the growth. That has also boosted earnings. Nifty earnings growth was expected to be around 27%, and it now looks like it could be closer to 30%. We were the highest on the Street at around 27%.
Question
Is that for your coverage universe or the Nifty?
Answer:
Even for the Nifty. Our coverage universe was also expected to grow by around 25%. What I am saying is that earnings growth has revived. The policymakers must see what has worked and what did not work in between. If we keep growing earnings at 15-17%, with inflation of around 3-4%, the attractiveness of the market will remain very high. Investors can decide whether to come in or get out. They have their own choices globally. But if we continue delivering 15-17% growth, the market will remain attractive because there are only two markets in the world that are compounding well: the US and India. For two or three years, investors have moved away from India. My sense is that they would like to come back because valuations have corrected, earnings are growing strongly and everything is falling into place. One year ago, the Iran issue was not there. Maybe a year from now, the Iran problem may not be there either. Crude could again fall to around $70-75 per barrel, which would be a more comfortable level. The AI trade is also showing signs of having peaked. I don’t know whether it will reverse completely. So, everything is falling into place. The market has corrected, and earnings are growing. I think we are looking at a favourable situation of 15-17% compounding for at least two to three years. My downside is limited, while the upside is much higher.
Question
What about FII flows? How do you see them shaping up from here?
Answer:
Look at the situation. FII ownership has reduced from 21% to 16%, while the reverse has happened with domestic institutional investors. DIIs have bought everything that FIIs have sold. Promoters have also reduced some of their holdings. So, DII flows are going to be continuous. That fact cannot be ignored.
Question
And that is also supported by the SIP flows?
Answer:
Yes. From here, even bulk money could come in. My sense is that domestic buying will continue, particularly at the current rate and with the current growth. Now, where will the stocks come from? There are only three sources. One is FIIs, which have supplied stocks over the last three years. The second is promoters, and the third is IPOs, which again involve promoters and some unlisted companies. We have to see how this plays out. If promoters decide that they do not want to sell India but want to buy India and build India, taking their ownership from 11% to 15-17%, it will be very interesting to see what happens in the market. That would change the supply equation, because this is one segment that has supplied 50-60% of the stocks.
Question
It is difficult to predict what flows will do, but those are the possibilities. In the current scenario, what are the bets to take in India, in local currency terms? Banks have been a clear favourite for you. Could you identify two or three themes for our viewers?
Answer:
We are in the financial services business, so capital markets and banks are areas to look at. Capital goods is another. There is a capex boom worldwide, including in India, because three or four things are happening simultaneously. Apart from AI, there is the energy transition. Solar, wind, batteries and all those areas are seeing significant activity. Then there is energy, and defence. Defence spending is increasing all over the world. Everybody wants to build up their defence capabilities because so many wars are happening and ammunition stocks have been consumed. Except for China and India, probably everybody’s ammunition stocks have been depleted. So, countries want to rebuild their inventories, and there is a heightened need to maintain defence readiness. I think defence is another area to look at. Then we have the global capability center (GCC) boom in India. This is happening in services. I would suggest that the government should think conceptually about GCCs for manufacturing as well.
Question
There are businesses in India already doing that.
Answer:
Yes, they are there, but I am talking about a broader concept. I think there should be some kind of policy framework for that. A lot is happening. The economy is vibrant, and we are also seeing consumption recover. Consumption was weak. FMCG companies have corrected significantly because they did not perform. I think the market is still in disbelief that some companies could grow at 20-25%. We have seen stocks such as Marico correct. Even Nestle has seen a correction. So, I think there is a revival in consumption that must happen. Otherwise, how can you grow at 8-9% for five years without consumption picking up?
Question
Do you think the FMCG space is also becoming interesting?
Answer:
I don’t know. There is a wide range of companies in the consumption space. You have to see which ones have good franchises, strong distribution and an uptick in demand, which is connecting with the consumer. So, stock picking is going to be the order of the day. Some of the very low-hanging fruit looks to be large banks where growth is — I mean, credit growth is 15-17%; forget about market share gain, and book is absolutely clean, provided 90-95%. I would think that at least there should be some amount of rerating in there apart from the earnings growth itself. And there are some places which are beaten down. So, one has to seek opportunities in those unfavoured stocks or sectors.
Question
But a better Samvat 2083, with more opportunities to make money.
Answer:
I would think that 99% chance that we’ll have bumper Diwali next year.