Peak Pessimism in India: What Does The Data Say?

The rupee has gone to 97. It went to 97.

But then the rupee weakening means our

imports get more expensive. Our

crude oil, which is where we are

dependent a lot on, adds pressure to the

rupee again because we have to keep

importing crude.

>> It sounds as if you should take all your

money out of India,

put it in I guess Taiwan because they

make the chips, Korea because they also

make chips and memory, maybe China

because they seem to have access to

their alerts, and the US where all the

innovation is happening apparently.

>> These feelings inspire me rather than

depress me. They take the money out in

hordes, and they have considerably

changed their view on India because

India does not have any AI. It's

interesting that the median profit

growth of Nifty 500 is like 17%.

>> That's quite high actually.

>> That's ridiculous.

So, it makes sense to invest into Indian

markets during a period of pessimism,

understanding that all of these stuff I

talked about will take you another year.

But over a four-year period or five-year

period, you're probably going to see the

benefits.

>> Are we doomed? Or do the pessimists have

a point?

>> [music]

>> Hi everyone, and welcome to a new

episode of the Capitalmind podcast. My

name is Shrey Chandra, and I'm one of

the co-founders here at Capitalmind.

In today's episode, we're going to take

a look at the concept of peak pessimism.

Both Deepak and I feel that the

narratives of India versus those of the

rest of the world, particularly around

the AI space, have diverged

dramatically. India's the place where

nothing can go right, and AI is the

place where nothing can go wrong. With

this, we thought we'd bring in Deepak to

discuss

is this time really different? Is India

doomed?

What will prospects be going forward?

Should you move some of your money

abroad and invest through LRS or other

means in global securities?

And if India is going to do well, what

should you invest in? So, do listen in

for a somewhat contrarian and different

take. And if you're right, then do

remember that he called this if wrong,

then don't let him forget it.

With that, let's get started.

Deepak, the narrative around India has

been very negative for I think a very

long time now. And I think in today's

episode, we wanted to discover have we

reached peak pessimism and are things

actually finally turning around or is it

like is the worst it's got so far?

Now, on that, I thought maybe we can

start by actually fleshing out the bear

case. So, can you almost steel man or

whatever or or flesh out what is the the

most

like

clear version of the negative scenario

that you can lay out for us?

Why is everyone so bearish on India

right now in your view?

>> So, Shay, I think the you know, the the

feeling or the narrative is bearish and

I I I don't disagree with the

data points that are being put out. Now,

let's put the bear case right here.

First bear case is the rupee has gone to

97. It went to 97

because you know, of a bunch of factors,

but then the rupee weakening means our

imports get more expensive. Our

crude oil, which is where we are

dependent a lot on,

um,

you know, adds pressure to the rupee

again because we have to keep importing

crude. Crude prices are going up because

of the Hamas war. India does not have

domestic crude resources of meaningful

sorts.

India is importing gold like crazy. Did

the 72 billion of gold last year.

Therefore,

India doesn't produce any gold.

Therefore, we have to bring in gold from

outside. That's adding to pressure.

Third one is that FPIs, foreign

portfolio investors, are taking their

money out. They're taking their money

out in hordes. They've taken out I think

more than 250,000 crores in the last one

and a half years or so. They have

taken out more money than they've

invested in

perhaps the 2 years of 3 years before

that. And they have considerably changed

their view on India because India does

not have any AI. In fact, whatever

happened in AI is hurting our IT sector,

which is our biggest export.

Uh they and you know, it may take away a

lot of IT jobs, which could hurt our

economy. It could replace a lot of

workers,

uh so on. This is the bear case. And

then it's like, "Oh, yeah, AI comes, I

will lose my jobs."

Uh there's an LPG shortage that's

happening because India does not have

enough LPG, or that's what the narrative

is, and it keeps going downwards,

saying, "Okay, foreigners prefer

investing in other countries, not in

India. India has adverse taxation for

foreigners compared to everybody else.

Uh India has uh issues domestically,

pollution, infrastructure, etc. India

also has a relatively limited government

space to spend. We do too much

subsidies. We do too little actual, you

know, capex-level investments. So,

therefore,

um

uh a lot of our money, our taxes, go

towards paying for freebies, uh rather

than anything else. These are again

macro, you know, bear cases and all that

stuff. And then there is, of course, the

fact that even FDI, which was uh foreign

VCs and investors investing into Indian

startups,

are now seeing those startups list and

taking their money out.

So,

it feels like there is a lot of

under-confidence in India. Inflation

will go up. You will hurt. You will

basically, why then invest in India at

all when you have all these headwinds in

front of you? And then, you know,

therefore, money is going out. Markets

are not going up. Our rupee is going

down.

Our FPIs are exiting, and so on.

>> Yeah, I mean, the way it sounds is that

you should take all your money out of

India, uh put it in, I guess, Taiwan

because they make the chips, Korea

because they also make chips and memory,

uh maybe China because they seem to have

access to that earth, and the US where

all the innovation is happening,

apparently. You unfortunately made too

strong a bear case. This is very

compelling, and I don't think you've

said anything wrong at any point. I

mean, you have actually laid out what

seemed like facts. So, what am I missing

or what are we missing? Why are we

recording this episode? Are we all

doomed? Or do the pessimists have a

point?

>> So, you know, see the my problem

I think perhaps I speak from a little

bit of

you know, too much gray hair is that

if I have seen these feelings before,

these feelings inspire me rather than

depress me. Because

every other time in the past and I I say

this as a generic. I'm I'm saying okay,

yeah, you could say this time is

different, but let's look at all the

times in the past and I've been in the

markets

or I've actually tracked the markets for

these particular times. I know it's

happened even earlier, but take 2002

perhaps or 2009 early 2009, 2013, a

little bit of 2016.

>> 2020

>> 2020 when the when the COVID crisis

happened. 2022 when Ukraine happened as

well. These are all mini issues at which

India looked horrible. I'll give you an

example. In 2002, 2002 there was 9/11

that had happened the year earlier.

There were there was the Arthur Andersen

and

Enron scams and a bunch of the massive

IT bust that happened in the US which

apparently supposedly affected India.

But at the end of 2002 it looked

absolutely miserable for India. And you

know,

interestingly I think Bharti Airtel had

gone IPO at just about that point into

that bear market and you know,

where were we? There was no meaningful

telecom at that point and and so on.

And then the markets went up 75% the

next year because as it turns out in the

end of 2002, the actual underlying data

was not as bad as the narrative.

It looked like oh, India would get

finished because again same IT bust,

what will companies outsource to India?

At that time the IT companies were

growing 30 to 40% per year.

And of course the dollar had

again, you know,

>> Was in a stable area for a few years.

>> that time and India's inflation was was

relatively under control. So the

narrative was negative, the markets were

weak, markets worldwide were weak, but

uh India's fundamentals were not bad at

all. Our IT industry was fledgling. It

was early early stages. I'm talking

about a few billion a year versus the

nearly 200 billion it does now.

Uh so in comparison we were

you know we were very very small. And

yet that that was the the the sectors

that were supposed to drive the market

which perhaps that time was early banks

and all that stuff. They all started to

recover and you could see that in the

data, but the narrative remained very

negative till end 2003. It was like we

were going up during a market that was

actually very um

the the new cycle was very bearish

towards.

>> So like they didn't believe the market.

They were like this is just a matter of

time before you

before it fell.

>> A dead cat bounce or something.

>> Yes, dead cat bounce. In 2009, you know,

we had this global economic crisis and

>> But even there wasn't the

it was an American crisis, right? I mean

why why was India impacted?

>> So I mean India was impacted a little

bit downstream because we were very

dependent on foreign flows. At that time

foreign flows when if FIAs [laughter]

exited and they exited about 80,000

crores at that time which in comparison

with today's 240,000 crores is a fairly

large amount. And that just ruined the

market because they were the majority of

investors in the market. Domestic

investment was very little. So in

comparison if you saw mutual funds were

very small in India that time. They

weren't there was no SIP sahi hai mutual

fund sahi hai at all as a as a thought

process. So everything got wrecked and a

large amount of India's domestic market

was speculation in the futures and

options market even more than what we

see today and we complain about today.

In comparison with the size that time,

India was a much larger speculative

player, domestic India. So, you saw a

lot of people getting hurt and going

bankrupt during that time. And

therefore, when the recovery started to

happen after March of 2009, I remember

the feeling because I had just moved to

Delhi at that time and I was like

this is not going to last. But this is a

fake recovery.

>> So, even you felt it this time.

>> felt it. I was And And this was This was

when, you know, it was really my

maybe a second or third real crisis.

There was a mid crisis in 2004 when

the government the left came into power.

The market crashed like

>> I do remember

>> And then in 3 months it had recovered

back because, you know, they said the

left won't determine any policy. So, the

market kind of recovered. In 2006, there

was a 30% fall after a large IPO,

Reliance Power Reliance Petroleum, I

think.

They were a very big IPO and then the

market crashed 30%, but in 3 months by

it was in April and by June the market

was down 30%, but by October it was back

at new all-time highs. So, I'd seen a

few of these mini crisis, but these mini

crises were, you know, at some point

existential saying, "Oh man, is

everything going to go down flames?" And

then it comes back up relatively fast.

So, 2008 was more sustained. It was

about 6 or 8 months. And that time

somebody told me,

"Deepak, these narratives

will change very fast because news

travels faster." So, I didn't know

understand what he meant, but I think I

We've seen a lot of those crises after

that. 2013, the you know,

6 years of QE or 5 years of QE that

America has done has flooded the US

market and the world market with dollars

and currency. People have money. India

has a lot of money incoming from foreign

investors. Again, even at this time

Indian domestic investments are like

nothing in comparison with foreign

investors. They were, I think, 22% of

ownership of

the Indian market by this time.

50% of Indian India has promoters, 22%

by FI's and

the remaining by all of our retail

investors plus corporates plus banks and

all that put

>> This is today or this was back then?

>> This was 2013.

>> 13, right.

>> So, that at that time when there was a

talk of a taper tantrum, that a taper a

taper meaning that no, I will not

flood the market as much as I used to by

and reduce the amount of that I flood

the market with. This is what the US was

saying. And then the

emerging markets took a beating.

>> I remember this. It was actually quite

horrifying because I remember our

inflation was very high, the rupee

weakened even worse perhaps than it did

right now. It was quite alarming.

>> It was quite alarming because rupee went

from 55 57 to 68. So, that's about

nearly 20% fall in a matter of a few

months. India then

changed the interest rates to

from overnight was about 7 or 8%. They

made it 12% overnight. The 10-year bond

went to 8 to 9%. Liquid funds lost money

which usually they don't do, right? So,

you you saw this period of craziness at

that time and it was like, what's

happening? I mean, the rupee is crashing

and then

Subbarao had to

his terms came to an end. Raghuram Rajan

came in. He created the FCNR

loan thing and basically what he did was

increase [snorts] interest rates and

also increase interest rates from a repo

from a

from a different standpoint. The instead

of turning

overnight rates to 12%, he made a

slightly different change in the

interest rate structure and he also

created this FCNR pool and

at that time it worked because US

interest rates were close to 0%.

India's interest rates were as I was

telling you 12% overnight and all that

stuff. So, the gap was wide enough that

if you provided a dollar hedge from the

RBI at a certain at a defined rate for 3

years, then Indian banks could offer

foreign currency hedged uh

exposure to deposits at say 8% or 7 and

1/2 or 8% uh effective rates. Well, for

them, I think for the dollar rate it was

effectively 6 and 1/2 or 7%. But,

getting 6 and 1/2 in almost

quasi-guaranteed dollar terms

>> When you got 0.25% in the US, I can see

why that worked and why it won't work

now.

>> yeah. So, at that time, of course, the

numbers were smaller. I mean, we are

talking about it brought in maybe 20

billion or 30 billion.

>> And that was enough?

>> That was enough. It's just that India's

economy is much bigger now, right? So,

now now the prob- the But, that's what

>> But, so 2013, how long did that last?

>> That

was about between June and November.

>> Almost half a year.

>> Unexplainably, market started to go up

in December. And things were as bad. I

mean, according to me, it was like, "Oh,

the dollar is still heavy." And even

though it was good, it was getting

better. It had come from 68 to maybe 63.

And I was like, "Okay, this also sounds

too high."

Uh

you know, it was it was a miserable uh

stretch for a lot of people. And then I

was looking at the markets, and the

markets started to go up. And I was

const- Now, by this time, I've seen a

few. And then I'm like looking at this

and saying,

"Peak pessimism is not a good idea." And

I at that time, I was just starting to

think about building Capitalmind, right?

So, I could actually say that, "Oh,

well, you know what? This is quite

interesting. And

uh there is perhaps something that we

can do." I actually started building out

the portfolio uh concept, investment

concept in the mid-caps, or thought

processes around them. And we could see

a lot of the ground data was actually uh

starting to emerge in a better way. The

point here was it was peak pessimism at

that point.

And

in the time of peak pessimism, I could

see markets going up. Uh which

>> And so this time you didn't disbelieve

it.

>> I didn't disbelieve it. I was like,

okay, this is interesting because if

markets are going up when they're

climbing a wall of worry, if that may if

you may that's you know that So there

was some kind of pessimism overload even

in the news, even in the narratives all

the way till 2014 when the market hit a

new all-time high and then it's kind of

uh kept going from there.

2020, I think the world was in a crisis,

right?

>> We weren't unique in that sense.

>> We weren't unique in that sense, but

then the you know, when the world was in

a crisis, they said India did worse than

everybody else. There was this article

by

>> Yeah, famous commentator.

>> famous commentator

>> on why I'm losing hope on India.

>> India, why I'm bullish I'm I no longer

have any hope for India. So it was

November 2020.

November 2020, India had cases but not

meaningful amounts of deaths in that

sense and the bigger crisis came in

>> us. The Delta wave.

>> The Delta wave. But

um

through the Delta wave

the markets actually went up.

And when we didn't have as much, markets

were going down, right? So

the bad news was on the ground, but the

the the the economic data was showing

otherwise and the core data was showing

otherwise and the stock markets were

going up. So interestingly, when you got

this peak pessimism case was usually

when the base So there are certain

commentators that if they start getting

headlines, I I look at it from a

perspective of the negative of the

Forbes cover, right?

It's like, oh, this is Yeah, correct. So

it's like if everybody says India is

bad, that's when my trigger things

saying, okay, okay, we're getting

somewhere here. And people I don't blame

the commentators. You know, there are

the same commentators who were there in

2002 and 2009, early 2009, 2013 who

would come on the forefront and be

interviewed on TV channels and all that

stuff saying

we want your views because otherwise

their views were useless when the

markets were going up and doing very

well. They would continue to be bearish.

And then you'd be like, these people are

waste to listen to because

I can't gain 100% and lose 30% from that

100%. And then this person keeps telling

me that my this country is you know

don't yeah. So, I would say

uh it's a sign. It's a it's a trigger

sign that says the narrative is

worsening. So, now it's time to check

the data.

It's happened in 2020, it's happened in

2022. In 2022, India was the opposite.

We were doing well economically as well.

When the world was reeling under the

Ukraine wars and first. Now, I remember

crude at that time went the same way. It

went to $130 a barrel.

Um

uh and yet

>> We're not there yet actually.

>> We went to 100 and we we've come back.

We when we saw all of this happening and

now where are we? We're again in a

pessimistic

>> pessimism saying all of this stuff. I'll

interject over here that you know I

really felt this acutely because as you

know I've

been very focused on foreign and global

investing myself personally for for a

long time. But in August 2024, I had

held a like a sort of a a small token

position of well not that token or it's

reasonably sized position of Nasdaq 100

ETF through the Motilal Oswal product

for longest time. And at that point I

think it was in maybe August where there

were some briefly some yen carry trade

fears and everything had fallen quite

dramatically for a month and then it

sort of recovered. I remember always

being just ashamed of how badly that

small position was doing compared to

everyone else in India and literally out

of I would say guilt slash shame I I

just quietly exited saying man this has

been a terrible four five year

experiment I really need to let this go.

That really was the bottom of that so

>> Yeah, it's like the peak pessimism in

the US at that time right?

The global our global exposure at that

time. So, interestingly

uh

it's at the opposite end the spectrum

right now. It says that it's NASDAQ or

nothing. And we are the nothing. And we

are the nothing when you can buy

anything else, but you don't buy India.

So, in that sense, there is this peak

feeling that is happening.

But I want to go one step further and I

want to say, "Listen, at that at each of

those times, the data was actually

looking positive." You know, the stock

markets were looking where it started to

go up. And

you know, what what's the what's the

equivalent now?

>> Yeah, so I think let me bring this to

the next phase of this.

I get it, but why do you feel we're at

the peak or the worst moment right now?

Because all the other signals you're

seeing, are you able to see some of them

now? And we will hold you to this, so

this will either make you famous or

infamous depending on how the next few

months go.

>> For the year ago.

>> All of this is at at some point

speculation. That's inside. But if I

look at the trajectory of crude, I'm

like, "Okay, where are we?" We went to

120 or something. We're crude oil this

is

May 29th. Um 2026.

It's at $90, a little bit less than $90

in in the market today.

The rupee has come back to some 95 odd

levels from the 97 levels that it

reached. Uh

crude oil is primarily centered around

supply. So, there's a lot of supply that

has been blocked because of the Hamas

crisis, Iran, Israel, and US war.

And that crisis looks like people don't

want to deal with it anymore. Um

most importantly, last few days, if you

see the US bond yields, which had gone

uh 30-year bond yield has gone to 5.2%.

Uh and what

>> 10-year was 4.6

>> or at some point, right? This is crazy

for the US because every 0.5% increase

in that 10-year yield is a $200

the US.

>> That sounds absurd, but luckily the US

can just print money, so none of this

matters anyway, so yeah.

>> They don't currently they don't want to

because there's also inflation. They can

print money when there's no inflation,

but I think the Fed is also like dude,

if there's inflation I'm not printing.

So, if

>> Are you saying not everything is perfect

in the US right now? Is that what you're

trying to say?

>> We can talk [laughter] about that

separately, but there are issues that

where I think macroeconomically they've

had issues for a long time. And I again,

you know, all of these issues I talk

about about India, all the peak

pessimism concepts

are not new to India.

We've had issues like this in the past.

We've had a lot of these issues. It's

just that they're coming together in

some kind of a nicely strung unified

way, which one comp complicates the

other and the complicates the

>> When it rains it pours kind of

situation.

>> When it rains it pours kind of

situation. But because it is

linked thing.

The important thing is look at the data,

okay? The crude oil reversal has

happened. The rupee reversal is

happening in in it's happening in a very

slow way. But what's happening over

there is crude itself is is one part,

right? So, what do we do with crude? We

don't want another crisis. We've seen

this.

Both the government and the private

sector like we need to change our

dependence because I can't have

shortage.

Then, you know, so what are they what

are they doing? The the

there's some discovery of crude that

they're talking about. They're talking

about building more

exploration. India does have a lot of

crude oil

that has to be explored. Now, it does

cost money to explore this. At $60 it

may not make a lot of sense. So, at some

point the government has to say,

"Listen, I will pay for some part of

this. So, you don't feel the damage if

crude goes back to 60, but I want to buy

that $60 oil from Indians rather than

from the Middle East and from other

places." So, that's going to happen. At

the same time private sector's like

listen, we got to expand beyond this.

So, our energy requirements whatever

they're linked to crude, we want to

delink. Maybe go to coal, which India

has. Maybe go to EV or electric

batteries and storage, which I I India's

working very strongly on

and that battery infrastructure with PLI

too and all that stuff will come back.

So, take a period of 3 years from now

our dependence on external crude will

probably come down not go up.

>> But at least as a percentage

>> As a percentage. Remember in 2008 crude

went to $140

in 2008. India had to increase our

interest rates by 1% point at one point

because we thought inflation will be so

high. We were hugely dependent on crude

in the sense that it was a much larger

portion of our GDP than it is today and

there therefore we suffered for a while.

But today that crude oil differential is

not as bad. Even then they were

administered prices now also the prices

were controlled from for petrol and

diesel. But they've increased the prices

of petrol and diesel to some extent and

that's going to cause some kind of

inflation in the going ahead. But the

some of the crude oil pressures were

about whether the government is to take

a big hit. They have to take a little

bit of a lesser hit now that the prices

of petrol have gone up. But remember

they've gone up for the first time in 5

years.

Which means if you increase the prices

by 10% but you increase it over a 5-year

period after 5 years, that means

actually 2% per year which is more

reasonable for me to understand and

take. But since it's a 5% at one point

or 10% at one point, I just feel more

pain right now.

This pain doesn't extend to a 3-year

forward phenomenon where most likely

crude will come back. But the situation

at almost like I said with the US

interest rates has

caused the US to back off

a little bit and has caused

>> [clears throat]

>> Israel and Iran to kind of come to an

understanding that this war has to find

an end. And I think if it finds an end a

lot of the supply shortages, a lot of

the damage to prices, the prices that

were going up to March will come down

and will will get addressed. This

changes the narrative on crude

immediately.

>> But that's just crude. That was just one

of like five factors, right?

>> So, let's take coal. Now coal there's

already been an appeal by the Prime

Minister to say don't buy gold. I don't

think that's going to happen. But it

didn't seem to work like uh unlike some

of his past appeals, this one didn't

land really. Yeah, it doesn't e- it's

not easy to tell Indians not to buy

gold, but it's actually possible for

people to monetize part of their gold

holdings. I mean, I could buy a lot of

gold because I feel richer or I want to

use it, right? But if I'm the user of

gold, there will be parts of gold that I

don't use quite as much. Now, a lot of

people do physically take their gold

exchange it and get new ornaments made.

Um typically, they lose 20 to 30% in

that exercise. So, there is a there is a

problem with gold that India desires to

use it, but India has 30,000 tons of

gold. We import 800 tons

uh of gold every year. Now, 800 tons is

a lot of gold to import because 800 tons

adds up to about I don't know I think

it's about a 72 billion or some some

number like that. A ton is about 1,600

crores. 1 ton of gold. So, 800 tons of

gold will be 14 lakh crores. That's a

lot of gold.

Uh that's a lot of gold to pay for

imports. But then, there are two things

here or three, actually.

Uh let's look at the numbers. Uh

India has 800 imports 800 tons of gold a

year, but it has 30,000 tons. This is

more than I think the next five

countries put together or something some

crazy amount like that, right? So, there

is 30,000 gold tons of gold internally.

There is a potential way to get India to

recycle two or three percent of its gold

in the coming years internally. But more

importantly, even uh digital gold and

ETFs,

they also import gold from outside and

store it in their vaults. They are not

allowed to lend it out for whatever

reason.

Now, I would say this part can be fixed.

>> So, oil and gold I I I think those were

fairly persuasive. In a sense, almost

desperate times will call for desperate

measures, and this is something we can

fix. But now, let's talk about Indian

industry. It feels that we're sort of in

the industries of the past. And do you

see that? Do you see that in maybe our

profit growth or our I mean, maybe not

moving this also a little bit towards

markets as well. Um when you look at our

companies, do you feel we're we're

basically behind the times and all

innovation is happening worldwide and

we're stuck with industries of the past

or do you see our companies continuing

to do well in some ways at least and

some of those results percolating into

the stock market?

>> Super. Okay, this is now this is where I

forget the crude and gold. I can't have

we can't have any major import on that.

We we control on that as us as industry.

As as industry, are we doing well? Uh

the answer to some part of it is there's

some earnings growth visibility.

December quarter was already showing

those signs. The

March quarter is showing amazing signs.

We're looking at

the Nifty 500 results.

>> So far, you could have fooled me because

I don't [laughter] feel it. But it

doesn't

>> I mean, it's it doesn't feel like it,

but it's interesting that the median

profit growth of Nifty 500 is like 17%.

>> That's quite high, actually.

>> That's ridiculous. I mean, some part of

it may be a base effect and all that

stuff, but it is very high compared to

what it was in the past.

Uh the commentary that's coming is

demand is there. Supply, there are some

issues here and there, but they will get

resolved. Um

almost every industrial seems to be

doing well, really well. They're seeing

an increase in orders and so on. Uh the

government itself has after 2022 changed

its mind about Indian um

um

uh dependence on foreign uh

uh imports of goods, normal goods. Now,

when it says mobile semiconductors and

uh uh

uh

electric vehicles, batteries, and cells,

and technology, and so on.

India has now started the effort of

saying, "Listen, we need to reduce this.

We need to substitute imports by

manufacturing domestically. So, I want

to promote the manufacture of stuff

domestically." What have we done this in

and we've done this in cars and we've

become reasonably good now. Some of our

cars are actually quite good

domestically manufactured cars. We are

one of the few countries in the world to

actually have a decent car industry.

>> Most people have just given up to China.

>> They've given up to China, Korea,

uh Europe and US. Even the US has given

up for the most part. Except in the US

you find those cars a lot more than

anywhere else. But the same thing with

India. India Indian cars are very

popular in India and we promoted that

industry and it's taken us a long time

but it's kind of come through. We have

to think like that going forward even

for all the other industries. We need

rare earths. India has a lot of rare

earths. We have We don't have the mining

and refining technology. We need to get

it or we need to build it. We need to

build the research. We need to do the

work. We need to refine the stuff

ourselves.

Uh like the Vedanta chief said,

give it to people who want to do it.

They will find a way to do it.

Uh we don't make semiconductors. We've

started to make semiconductors and it's

already come from the low end to the mid

end. That means we're working with

companies like ASML to say give us the

machines, we'll do it. They might give

us lower end machines but at least if

you were to manufacture lower end

semiconductors,

we could replace a lot of imports that

come into the cars. The semiconductors

are manufactured in China. We could

There is a lot of work that's happening

around this front but the core data

shows positive growth, not negative. In

fact, solid

>> is it just profits which could be like

perhaps as you said base effect or

something like What do you see in terms

of I don't know capex or in terms of

credit growth? How are those going?

>> Yeah, so capex and credit growth are

linked, right? So industry in India

didn't do capex at all since between

2014 and 2025.

>> Uh

this is why?

>> Because

uh actually started off because of the

Indian bankruptcy code.

Now, the typical idea in India was large

industrial families would take loans

from banks and then default on them,

then go to the bank and say let's do

settlement, DRT, etc., etc. The bank

would take the hit and give another loan

to the company to pay back half of its

earlier loan, write off the other half,

and then move on.

This is very standard. By the way, this

is also how a lot of farmer loans

operate. Uh when farmers realize there's

a farm loan waiver coming, everybody

stops paying their loans so that they

can settle when the government will pay

their loans instead, and then they get

more loans and move on.

>> Okay, but you you feel differently when

the farmers do it and when the when some

large industrial group does it.

>> right? So, because we just feel that

rich industry shouldn't do it. Poor

farmers, who are actually some of them

are quite rich, do it, it's fine. But,

I'm not going to get political about

this. I'm just saying that this was the

phenomenon done earlier. Um

However, in with the bankruptcy act,

what started to happen, and it happened

uh perhaps with um

I think uh

uh Tata Steel first acquiring um

>> One of those Bhushan entities.

>> Bhushan Steel, yeah, I think. And

Bhushan there was a comes from a again a

rich industrial family where they didn't

think that this would actually go

through, but the bankruptcy said, "We

are Yes, you can repay only half of your

loan. That's fine.

But, you lose the company. We're going

to sell it to somebody else."

>> And it actually happened.

>> And actually happened. So,

>> So, but it should have been bullish for

capex?

>> So, it was bearish because suddenly all

companies which had borrowed, and they

expected to get a little bit of these

write-offs, suddenly said, "Dude, dude,

just pay back the loan. These banks will

come and take over our companies."

>> So, it was like a reset of

>> a reset. So, they said, "We won't do

capex." And a lot of this capex was

duplicated. So, in the sense of if I

wanted 100 crore, I'll borrow 200, I'll

only spend 100, I'll siphon off the

remaining 100, and

um you know, uh the I'll I'll make the

bank write it off.

So, I the real capex I'll pay, the

remaining I'll this thing. And banks

themselves were very aware that this was

happening. They would do stunts to kind

of uh

um

um you know,

>> They all had some understanding.

>> was a

There was an understanding. All of this

stuff went away. Banks were loath to

lend to capex in the first place.

Corporates that were good were saying,

"I'm not doing any more capex. I'm done.

I want to be zero debt. I want to be

this. I want to be Even the good I mean,

I'm not saying there there are some bad

corporates, some good corporates. The

bad corporates were like, "Listen, we

don't want to do this anymore. I don't

want to lose the company for the sake of

a few dollars."

>> about corporates who who aren't going to

default on this anyway?

>> Yeah, they were like, "Listen, if you go

to the banks, they're going to lump us

in with the bad guys anyway."

>> So, it was just a era of mistrust.

>> Mistrust

>> Or in a new environment.

>> And and people were like, "Listen, IBC

thing can be hurtful because anyone can

put a claim anytime, and then they could

take your company through bankruptcy."

It took a lot of time for the law to get

established saying, "Listen, frivolous."

But capex by itself

did not go up across the industry. One

what is one com company's capex was

another company's drop in capex and so

on.

It is now, suddenly, that capex seems to

have risen quite dramatically. It may be

linked to the other changes we're

talking about where the government is

pushing people to do PLI, data centers

are appearing in India, and so on.

All of these things have changed the

nature of capex completely. India's got

a nuclear

breakthrough.

That breakthrough is going to require us

to build at least maybe five or six more

nuclear plants, nuclear size

things in the

next few years. That has increased capex

in one area. There is semiconductors.

There is

differentiation in cars. A lot of this

for domestic usage. I'm not even saying

for export. Just replace domestic usage,

and you should be in better shape.

All of this is happening at the same

time. And how does it reflect in data?

You look at bank credit growth to

industry.

It was at

uh

15% in 2013.

It grew 15% year on year

as measured in 2013.

It went to 0% even negative after that.

That means it kept going down in terms

of growth. And then now it has finally

come back to 16% as of March 2026.

So

CAPEX growth is increasing and therefore

credit growth is increasing because

people are funding this CAPEX through

credit

bank credit.

And because you can see it in

industrials, I think that is one very

important sign. Even the personal

loan credit. That means you and me

taking loans for housing or for for

personal loans or for businesses or for,

you know, a loan against securities and

all of that stuff. Even that is growing

now finally after 2 years after

RBI clamped down on the sector quite,

you know, strongly in 2024. And then for

for a year we saw credit growth even in

the personal area for personal loans go

to zero. And then because there haven't

been that many defaults, RBI's eased up

on this. And then now we're back up to

16% there as well.

If you consider credit as one

early stage indicator of India

showing signs of recovery,

then credit is coming back.

>> So both CAPEX and credit you you have

enough positive narratives to indicate

that things are in a sense turning

around and and it's already happened. We

just don't believe it yet.

Now maybe I thought I'd bring this

unless there's anything else that I've

been forgetting. I thought I'd try try

and bring this to

investors because so far, you know,

we've been talking macro. There's oil,

there's gold, there's credit growth and

so on. But most of us, especially the

people listening to this podcast, while

this is all very interesting and useful,

the fact is we look at stocks or we look

at mutual funds or maybe we look at some

debt funds or something like that. And

over there we've been in a couple of

years of I think at best flat to low

single digit returns and at worst if

you've been in the wrong strategy,

negative 10, negative 20, who knows how

bad it could have gone depending on

where you were stuck. Um

so on that do even see some beginnings

of green shoots in the stock market?

>> Like yes, like remember all those other

episodes where you're like, "It has

started to go up." but everyone was

like, "Oh, don't take this seriously."

>> Yes, yeah. I I know, you know, it's

interesting.

Let me take two areas where I think

India has gotten a beating. One is the

FPI {slash} FDI

issues, and one is

the AI kind of a issue. Well, AI they

said, "Okay, let's start with AI."

I don't dwell too much on it. There are

too many people writing so many things.

>> I I I can't I don't think I could stand

to listen to another take on AI.

>> No, you know, every morning you come and

today I hear that the AI tools that

people are using are suddenly refusing

to do work. Because the training

they're they've been trained to say,

"I'm sorry, I you're not supposed to

write this email."

I'm like, "Dude, I wanted If I wanted

people to

you know, I have enough

>> I but again, I'm starting to mute this

on all my immediate devices, but anyway,

so leaving aside the

>> But the AI's problem with AI was A,

India didn't have much AI,

and B, India was going to lose jobs to

AI.

I think both of these assumptions are

just wrong.

Every technology takes away some jobs,

creates 10x more.

Whether it was the

you know, the typewriter industry that

would have been destroyed by computers.

Yes, sure, you sold some lesser

typewriters, but you sold you got people

who could type. Continue to type on a

different framework, you know,

something. A different skill.

But when you had an STD booth for mobile

phones, those got people got wiped out,

the people who owned STD booths. But now

they sell some other stuff while people

use mobile phones for everything. You

can't make You can't pay someone to make

a phone call anymore.

>> But now I I really need you to bring

this back to market because I'm getting

>> What happens over here is that if you if

you think of AI as not having a negative

on it, and there is a positivity to

maybe more work coming along. The fear

on this IT companies destroying

themselves because of AI is no longer

valid or isn't valid in the long term.

That has one thing. Second, our FMCG

companies got hit because they said AI

is going to reduce jobs. So, well, you

know what? That impact is not there. So,

I'm saying downstream, if you look at

the AI part of it, second order effects,

it's not as bad as it was. Uh Intel,

too, as as we've seen. But at some point

there will be the next gen of players

that will sit on AI, many of whom may be

in India just because India has the

enterprise to build those companies. A

lot of companies in India are doing

routing for AI and a bunch of security

features and all that stuff. But there's

also a lot of next gen companies that

are being built here that may take place

in the next 5 or 6 years. So, I don't

think we will lose out on the AI game.

Uh from the listed market, these guys

may still take some time. But you will

find that there will be usage uh based

parameters on top.

Now, the markets itself,

if they've taken these negatives and the

FPIs have taken these negatives and

suddenly find that the narrative that

India is zero on AI is maybe two on AI

out of 10. That itself brings in some

investment going forward. There's a

peculiar concept in FDI as well.

FDI is essentially what foreign

investors uh have invested in unlisted

companies. So, uh Swiggy, Zomato, etc.

When they were fledgling companies, got

investments from abroad. Those companies

have listed.

Now, these are VCs. The VC structure

says you don't get to behave like a fund

that can repeat its investments. That

means if you sell something, you have to

give the money back to the investor. You

make your 20 investments, whatever makes

money, take the money out, give it back

to the investor. He gives you new money,

you create a new fund, and you do on go

on

>> Well, it generally takes long enough

anyway, so thank god.

>> Yeah, that's that's that's the way

they've structured. But it's not like

us, as a mutual fund, if I sell one

stock, I can use the money and buy

another stock. That's perfectly fine. I

I don't have to return the money to the

investor itself, right? So, when they

these companies list, so whether it is

small company or a big company, when

they list in the market, these VCs have

to go to the market and say, "Whatever

money whatever I can take out, let me

take out. I have to give it back to my

investors." My investors then have a

timed phase lag between them investing

into back that money into India. Maybe

there's a negative sentiment right now,

and so on.

This also the fact that interest rates

are high in the US, which means that

people who investing in fixed income can

make a slightly higher return. So, to

that extent, I think there is some

pension funds and all that who said,

"Take out our riskiest investments and

invest them back into fixed income,

because I don't need the extremely high

returns from emerging markets. I can use

them in US government bonds instead."

So, they've changed the mix somewhat,

but I think all of this is going to

reverse, and

this will take longer from our interest

rate perspective, but I think overall,

you'll see that as time goes by, these

FPI reversals in terms of bringing back

that investment and reinvesting into

India will happen over a course of time,

especially after if there is a

um

I won't say AI bubble burst, but I will

just say slowdown of growth

in the AI infrastructure that is

currently being done in AI abroad. So, I

think some of that money will get here.

Look at So, markets then benefit from

liquidity that says the foreign

investors don't go out

as much. Rupee benefits in some way

because again, of these reversals. The

market is already showing signs of

earnings, and then we're seeing an

increase in

you know, domestic investment, domestic

industrialization, and so on. So,

there's a downstream impact. Now, don't

think of any of this as this is May.

This will happen in June. I think you

should think of 2026 versus 2030. How do

we go from here to there? I think that

is the thing that picture that we're

missing. That's peak It was peak

optimism 2 years ago. There was nothing

but India.

>> You had India plus China plus one

Goldilocks economy.

>> China plus two also if in some cases.

Goldilocks economy. The words were, you

know, flowing out of that time. And like

you said in October 2024, the US was

underperforming India by a large extent.

So, to to that extent, it sounded like

India was the best thing to be and

nowhere else was the best thing to be or

a good thing to be.

Now, the tables have turned. Korea's P/E

of 4 has gone to P/E of 8 and they've

doubled and Taiwan has gone up and you

know, and Japan has gone up. Suddenly,

you find that, oh, there's everything

but India. I think both these views are

wrong. The truth is always somewhere in

between. So, it makes sense to invest

into Indian markets during a period of

pessimism understanding that all of

these stuff I talked about will take you

another year.

But over a 4-year period or 5-year

period, you're probably going to see the

benefits of whatever is

we're doing to fix what's happening

right now.

>> Okay. So, like as Ritesh Sharma says

every time he comes on the stage, um

India manages to disappoint both the

optimists and the pessimists at all

times. So, that's completely understood

and taken. I have two areas I'd like to

stay at and maybe I'll I'll move on to

like advice for

uh for people as they're looking to

invest.

The first one, Deepak, is, you know, a

lot of people have from India have in

this time been talking about the

importance of foreign investments.

They've set up like either they have

something in GIFT City or they're

saying, "No, I don't have anything, but

you should still do this." And I can

maybe give you advice or or

you can I can give you some ideas of

what to buy. Um

It's done well so far. I'll go as far as

to say that, you know, even last night I

I I had to wake up in this this morning.

I was like, "Is this Is this a typo?"

But apparently, Dell is up 40% after

hours after already being up some 100%

in the last year. So, the momentum there

hasn't abated there yet, if I may put it

that way. So, how do you feel about

people who are like, "Look, this was a

wake-up call. I can't have all my money

in India. I should have money abroad and

these these noble souls are helping me

with my journey abroad, whoever they

might be on Twitter or things. Let me go

and listen to them and

hopefully invest some money abroad. How

is that going to go?"

>> No, this is actually

I think also recommend. We've been

talking about this since what, 2016,

2017? Where we said so many of our

investments

our investors themselves should have

some kind of a foreign exposure. We've

had the Nasdaq 100 ETF even the PMS for

a while. We've actually done

you know, talk to our customers and

said, you know, 5 or 10% of your

investment should be non-India. One of

the reasons why it should be non-India

is just for the diversification and the

fact that you might need dollars when

let's say your kids grow up and maybe

they go to a college abroad and and so

on.

However, it's overdoing it to a point

where, "Oh, I should take all my money

out of out of India. I should take a

significant chunk of my money out of

India. I should then if I take 10% out

of India, then 90% is India. If India

hurts, my 90% of me hurts, but I can

then I if I go around telling everybody,

"My 10% is is doing great." That part is

also incongruous by saying that's the

only thing that I have, right?

>> It's like when you only look at the one

profitable stock in your otherwise bad

portfolio.

>> Yeah, so it doesn't really but I think

you should have a diversified portfolio

for this

precise point that at some point you'll

have a

mix. There are some issues here that you

know, there is an LRS limit and you

know, those limits may change. There is

a taxation on every LRS thing that you

do that has this

but you invest out when the dollar is at

95 and your investment abroad is exactly

the same and the rupee comes back

>> to say 85 or something.

>> 85 or so because rupee is there is a

there is a measure called the REER. I

don't believe in it because I think it

undervalues the rupee. But because the

complexity in this is

REER is a merchandise trade weighted

average of all our all all

all trade between different currencies

countries and our relative inflation

with those countries. Now when you do

merchandise trade we are heavily

weighted on China.

We have some US but China is our

biggest. So our relative inflation with

China determines where our thing is. And

China has a controlled you know

exchange rate economy. However

India with

has a significantly higher services

trade with the US. So if you use that

India's India's relative inflation with

the US is much lower. In fact India's

inflation is in fact lower than the US

right now.

So technically we should be appreciating

if you look at just inflation. But I'm

just saying that this REER undervalues

the rupee. The REER was 105 106 which to

me was not a problem. But today the REER

itself is at 90. And that also according

to me undervalues the rupee. So

>> So it we

that itself says that we are 10% below

below what it should be.

>> So it should it could go from 96 to 87

just

>> If you get that right we are going to be

in this segment again.

>> No but then it takes some time. Some

time it takes a year year. These are

macro pain dry watching and all that

stuff. But I

feel

if that happens you lose 10% in rupee

terms. It will be the same in dollar

terms. But if you will be 10% down in

rupee terms and that is a 10% loss. That

that's one whammy.

>> Which is right now you are having the

opposite. If you had any dollars abroad

you are seeing it the rupee value go up

partly because of the well just the

currency.

>> Second thing is what if there is a

return of Indian people person something

happens where India goes up

relatively more

because it's at a relatively lower

number and we're in the early stages of

where we are, but wherever if the

recovery is fast

in the next 1 year or 2 years, you might

find that the Indian change in

uh

stock prices could be higher than what

is happening abroad. The second one is

uh

let's say this B part of this thing

would be

what if the US markets or the world

markets don't return as much. There are

lots of reasons why and

macroeconomically you could argue either

ways. But, there are lots of things like

US bond yields being very high, has a

deficit. All of these countries have

deficits

>> infinite money printing machine might

one day face constraints.

>> might be finite, yes.

>> All right, Deepak. Here's my closing

question. Let's say someone has made it

through to the end of this podcast.

They've listened to it. At some level

this is also very prescriptive of things

we can do.

Now, let's look at again your own

portfolio. If you have There are a lot

of people I know customers in our PMS

and maybe I guess to some extent

customers of our mutual fund as well who

have cash on the sidelines, who got it

over last years, have saved it, and

haven't deployed it yet.

Is now a good time for them to deploy?

Should they do equities? Should they do

Indian debt?

In equity should do small cap, mid cap,

large cap? How would you ask them to

think about this to the extent when

they're making their

further decisions of you know, I think

this has further to go.

Or if someone is right now is thinking

maybe I should do some LRS. How should

they think about it?

>> Yeah, I think I mean see the LRS thing

is a question that I think everybody

will have at some point, but I say think

about it as a systematic investment

rather than a lump sum. That you can do

this over a period of time, but that

10-20% of portfolio is where I would say

do it because there are complexities in

investing abroad, tax differentials, all

sorts of things that happen. But, on the

at the same time I think now when you

have a lot of cash, your portfolio is

let's say 50 rupees investment, 50

rupees cash or say 75 rupees investment

25 rupees cash.

That 75 rupees let's say all of it was

in equity

or rather half of it was in equity. You

wanted yourself to have a 50-50

exposure.

You now have 37 odd

in equity, 37 odd in debt and 25 in

cash.

>> That's a lot of debt in this example.

>> yeah. Yes, so I mean assuming that 50-50

is where it is. But if you just want to

bring back yourself to 50% you would

actually have to invest

half of this money again into equity,

half of this money again into debt. But

let's say you decided to invest a

certain amount,

I don't know, it's maybe 10 lakh rupees

that you've saved. You want to invest it

in equity to get your equity and debt

allocation to some level.

That 10 lakhs should not go in at one

point because we know all of these

problems that we just mentioned are not

going away tomorrow. This is not the

bottom. This is peak pessimism, but it

may not be bottom. The peak pessimism

phase can last three or four months.

You can narratives can get worse.

These particular commentators can be on

the front page of

>> Everything.

>> newspapers.

There is a lot more that can happen and

we've seen that optimism can also go to

crazy extremes. We saw in the US that at

some point the market actually nearly

doubled before it fell.

>> In the '99 situation.

>> '99 situation because people kept saying

that the market will go down and the

market doubled before it fell.

So the

unfortunate part about uh

>> not being able to predict those

>> You can't time it with precision.

>> So I would say therefore I don't have a

correct answer on now, tomorrow, later.

I just say keep at it.

Uh things could get worse, but I see the

next four years as very big positives.

So regardless of when you invest now, I

think four years later returns should be

commensurate to the greater economic

growth that we will see. So I you will

be fine over that period of time. And

the reason I'm saying that invest

in a phased manner is because

I said peak pessimism when market prices

were going up. Market prices are not yet

going up.

>> But they're not going down either.

>> going down. But I I'll give you that.

But they're starting. They're showing

signs. They're saying, "Okay, maybe or

no no. Maybe or no no." So, that's what

they're doing right now.

>> So, we're testing the bottom.

>> a point when the market hits a new

all-time high.

And it will seem at that time

that come on, how can our markets be

hitting an all-time high when

>> This will just collapse the next week.

Yeah.

>> This is another big trigger. This is my

last trigger, at which point I say that

at that point I'm confident that things

will go back

in the long

And I feel that, you know, even at that

time it's like a phased investment. By

the way, we did hit close to an all-time

high in January this year. And then we

got the Ukraine the Iran war in

February.

>> we're back down.

>> And back to where we're back down. If we

hit it again, and I think that's when

we'll I'll get more confidence that this

is actually peak pessimism at a time

when market prices are going up. So,

since that is ahead of us, that's why I

say invest in phases. I think

that when that does come, then you'll

get yourself use it as a trigger point

to say, "I'm on the right track. At

least I've invested on in the in the in

the in the right track." I would say

that is the point that you want to play.

The type of fund, large, mid, small,

multi

>> Is there any pattern from previous

crisis or something special this time

because of the level of I don't know,

capex or something we've had?

>> So, I think capex means typically that

the largest companies will do better,

but it also means that

the absolute number is better. That

doesn't mean that the smaller companies

will grow at a smaller percentage rate.

So, it's like if a 10 crore company

doubles, it becomes 20 crores. If a 100

crore company grows at 30%, it's at 130

crores. So, the 30 crore differential is

much larger than the 10 crore

differential in the small company. But

you've got 100% return in one versus a

30% return in the other, right? So, the

percentage gain could be greater if you

invest in a more diversified portfolio

that contains both large, mid, and

small.

If you don't know,

>> do flexi caps or do all of them?

>> Yeah, we have a flexi. So, I mean, in

that sense, we do have

offering to

>> this your fund manager's problem, not

your problem.

>> manager's [laughter] problem. And then,

uh if you don't even know whether to

invest in equity, debt, or commodities,

then go to a multi-asset or or spread

your, you know, wings that way. I would

say the actual instru- instrument to

invest in should be as broadly

diversified as possible.

If in the equity universe, then the

flexi cap is the most diversified. If

it's across the market, a multi-asset

makes more sense. But, that is your

typical I don't want to have to think

before I invest in. I wish Indian mutual

funds could invest abroad much more

easily than we could give international

diversification, but there are limits

right now. So, those thing investments

you may have personally at separate on a

separate basis. But, understand there

that you have these three or four things

that can provide that whammy that takes

away from your returns in the next three

four years. But, that's fine because

you've gone in there for

diversification.

>> All right. Fair. All right, Deepak. So,

I'm curious to see how this episode

ages, whether we really did catch the

the worst of peak pessimism or if the

worst is ahead of us. So, we're going to

find out soon enough. And

we'll hold you to it, right? Thank you.

Well, that's our show. I think like me,

you're probably curious to see whether

we've timed this one right. Is this

truly the moment of peak pessimism and

things are going to turn around or is

the worst still yet to come?

But, either way, if you're looking at

your Indian investments more seriously

and are figuring whether you'd like to

add more to it, then I think there's two

ways we can help you. If you have more

than 50 lakhs and then looking to

invest, we have our PMS,

capitalmindwealth.com,

where we can invest your money in Indian

and eventually global stocks and

securities. And we have our mutual fund.

So, if you'd like to get into our

flexicap fund, a multi-asset fund, and

maybe outsource the decision-making and

even the taxes to someone else, then you

can go to capitalmindmf.com

uh and take advantage of a much smaller

ticket size to participate.

So, with that, see you next time and

happy investing.

>> Mutual fund investments are subject to

market risks. Read all scheme-related

documents carefully.