Stronger earnings and urban demand could revive FII confidence in India: Gautam Trivedi

In an insightful conversation with ET Now, Gautam Trivedi from Nepean Capital painted a balanced picture of both the American and Indian economies — one marked by surprising resilience in the US and temporary caution towards India.

“The US economy is clearly not in slowdown mode right now,” Trivedi affirmed, underscoring the strength of American spending. He noted that S&P 500 companies are projected to spend $4 trillion in 2025, encompassing capex, R&D, share buybacks, dividends, and M&A activity. “That figure,” he added, “is more than India’s current GDP.”

Even more striking is the expected 11% rise in corporate spending next year, showing sustained earnings growth across US corporates. “The dividend and share buybacks alone will be approximately $1.7 trillion — money going straight into the bank accounts of shareholders and consumers,” he said, emphasizing the liquidity boost driving the world’s largest economy.

Addressing the common perception that the US equity rally is driven only by the ‘Magnificent Seven’ tech giants, Trivedi countered that view. “That is not the case. I am only referring to the top 500 listed companies. There are another 4,000 or so listed companies which are not captured in this $4 trillion number. The private companies are not captured either — for example, OpenAI’s capex is not part of it. So, the number is a lot bigger, potentially another trillion dollars.”

Turning to India, Trivedi highlighted a concerning trend among global investors. “Eight out of ten people that I met, or maybe nine out of ten, are clearly underweight India — by as much as 200 to 250 basis points vis-à-vis the MSCI Emerging Market Index,” he revealed. India’s weightage has fallen sharply from 21% last year to 15.7% now, reflecting nearly $17 billion of FII selling year-to-date.

When asked why FIIs have stayed away from India despite the long-term growth story, Trivedi clarified: “Interestingly, valuation was not that big a deal — surprise, surprise — because India has historically been expensive. But when you marry high valuation with an earnings slowdown that has lasted 18 months, that’s the real problem.”

He added perspective on relative valuations: “India trades at about 22–23 times one-year forward earnings — the same as the S&P 500. US investors find S&P 500 expensive at 22 times, whereas in India we say it’s not a big deal.”

However, Trivedi maintained an optimistic tone about a turnaround. “If earnings do not improve, FIIs will continue to stay away or sell. But if earnings improve — which is the hope trade we have with the GST cuts and the last five weeks of explosive urban sales — foreign investors will come back to India.”

Among investor concerns, the future of Indian IT was a recurring theme. “People asked about the future of Indian IT given H-1B restrictions and the onslaught of AI,” Trivedi said. “These stocks have done nothing in five years. I do not see necessarily any light at the end of the tunnel unless they reinvent themselves. TCS announcing an investment in data centres is a great positive to pivot into an emerging business.”

There was also strong curiosity about India’s AI and power ecosystem, as investors looked for ways to play the AI boom domestically. “There was a lot of expectation on that,” he said, “and a lot of questions around power generation and transmission — critical to fuelling AI growth.”

Looking ahead to FY26 and FY27, he sees cause for optimism. “Everybody is talking about a better second half,” he said. “That hope trade is backed by expected rate cuts, GST reductions, and the upcoming PSU pay hikes. Add all that together, and there’s a strong case for earnings improvement from the second half of this year flowing into FY27.”

In essence, while Wall Street continues to surprise with its resilience, Dalal Street’s revival — as Trivedi suggested — hinges on one simple trigger: earnings growth.