We have had the good fortune of being associated with Akash Prakash, the founder of Amansa Capital, a highly respected India focused fund management firm based in Singapore. Even more so, we look forward to his column in the Business Standard, for he says it the way he sees it. In this piece, he laments about the dramatic turn in the Indian stock market’s perception amongst foreign asset allocators – from being the most favoured emerging market until not too long ago to what now looks like on the verge of irrelevance.
First, he puts some numbers to give us a sense of the extent of this turn: “Since the Indian market’s peak in September 2024, we have seen $65 billion in net outflows by foreign portfolio investors (FPIs). Over the last decade, India has received zero net-foreign flows.
The stock of Indian equities owned by foreigners has fallen from $930 billion to about $675 billion, and foreign ownership as a percentage of the market is now at a 15-year low. India is now a consensus underweight for all global investors and our weighting itself has shrunk from 21 per cent in September 2024 to about 10 per cent today (MSCI Emerging Market index).”
Then he quantifies the staggering underperformance of India: “Since the peak in September 2024, Indian equities are down about 25 per cent in dollar terms, even as the EM indices are up about 50 per cent. We have, therefore, underperformed by 7,500 basis points (75 percentage points) in the last two years alone. I have never in my career seen this quantum of underperformance in this short a period. It has destroyed careers and blown up funds. There are numerous funds that have destroyed 10-year track records in the last 24 months by simply being overweight India.”
He reminds us that even on a 20yr basis, India has delivered a meagre 6% post tax returns in dollar terms. Its this uninspiring track record coupled with a barely double-digit weight in the EM index which makes him worry that we will fall off the radar of these allocators.
“If India were to lose its attraction as an independent asset class that is a cause of worry. We will attract less structural capital and be of less relevance to global allocators. Not a good place to be for a country fundamentally short of capital. Equity markets are a competitive advantage for India, we weaken this if we lose access to dedicated pools of long-term capital.”
Akash has been consistently writing about his conversations with allocators, and we need to pay heed when he says: “All allocators are upset about the capital gains tax. They do not pay these taxes in any other major jurisdiction. It drops projected long-term annualised returns by about 2 per cent and that is a huge difference when comparing countries over long holding periods. There is also the perception that India remains a complex place to do business. Indian service providers do a good job of scaring the risk and compliance teams of global investors. While this may be unfair, the perception sticks.”
He ends on a more sanguine note, noting that such conditions are often contrarian indicators suggesting a turn around in India’s fortunes relative to other emerging markets could be imminent.
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