When Will India FII Investment Come Back?

Some updated real-time thoughts on India from Ridham Desai, Head of Morgan Stanley India.

Six Key Observations on India’s Setup

• Underweight at all-time lows. Foreign investor positioning in India is now at an all-time low on India stocks compared to the past — a contrarian signal of the highest order.
• China outperformed India on stimulus. India has underperformed China this year because of China policy stimulus. China is up 50% and policy stimulus proved to be a bottom for China stocks and a top for India stocks. BABA moved from $70 to $140, for example.
• Relative chart is “really juicy for India.” On a relative basis, India looks extremely attractive versus its history and versus other emerging markets.
• “Those waiting for India, now is the time.” Ridham Desai’s direct message to investors who have been on the sidelines.
• Sensex in gold ounces at cheapest since November 2020. Desai has been measuring the BSE Sensex in gold ounces for 30 years. This is the cheapest it has been since November 2020 — a COVID-like entry window.
• A moment is coming. A moment will come when it looks so attractive that investors say “we are buying stocks.”

Current Valuations

Tata Consulting is 26× PE. ICRA and CARE are 25–30× PE. Reliance is 23× PE. Many mid-cap India names are down 30% from their highs. Names like Asian Paints are well off their peaks.

We own ICRA and CARE in Veda Global at entry valuations we believe provide a significant margin of safety relative to their quality, moat, and long-run earning power. At these multiples, for businesses with 90%+ gross margins, negligible capital requirements, and growing earnings, we believe the risk/reward is exceptional.

Our View

We have been invested in India since 2021 and have seen multiple cycles of foreign investor risk-on and risk-off. Each time FII selling has created an opportunity in our holdings, we have used the period to build conviction rather than reduce exposure.

The long-term thesis has not changed: India is the fastest-growing major economy in the world. The credit rating agencies we own — CRISIL, CARE, ICRA — are natural monopolies in a credit market at 1-5% penetration versus the US. NSE is the infrastructure of India’s capital markets. These are “Great Businesses” in Buffett’s framework, and we intend to hold them through the cycle.