Napean's Gautam Trivedi bets on financials and power as India re-emerges on global investors’ radar

A compelling investment case is building for India, driven by its recent market underperformance, attractive relative valuations, and peaking investor interest in other major Asian markets like China and Japan, says Gautam Trivedi, Managing Partner at Nepean Capital LLP.

According to Trivedi, the Indian market's recent lag is not related to a lack of an artificial intelligence (AI) theme but is primarily due to its historically expensive valuations clashing with an earnings slowdown. "The selling in the last 12 months from FIIs (Foreign Institutional Investors) has been focused primarily because of that," he explained.

He noted the irony that while a 22-23 times forward earnings multiple is considered very expensive in the US, it is often seen as acceptable in India. However, the combination of high valuations and slowing earnings has been a major deterrent for foreign investors.

Trivedi pointed out that India’s weight in the MSCI Emerging Market Index has dropped from a peak of 21% last September to 15.7%, making it the third-largest market in Asia after China and Taiwan. At the same time, global investors remain underweight on India by nearly 200–250 basis points — a gap that could translate into meaningful inflows once sentiment improves.

While India’s dollar returns this year have been modest at about 5%, compared with sharp gains in Korea (81%), Taiwan and China (35%), and Hong Kong (30%), Trivedi believes this relative underperformance now makes India more attractive on a risk-reward basis.

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Trivedi sensed that investor interest in China and Japan has peaked. "People are now asking the question that if China's and Japan, we think have peaked in terms of absolute equity market performance, should we be deploying money in India at this point?" he said.

According to him, the near-term trajectory will depend on whether corporate earnings recover and if the recent GST rate cuts can stimulate a sustained demand revival. “A lot is riding on the earnings comeback,” he said, adding that once earnings show signs of acceleration, foreign investors are likely to re-engage with India in a more meaningful way.

In terms of specific themes, Trivedi is bullish on the financial sector. "The good news is that you have seen a lot of M&A activity, strategic change in CEOs, restructuring," he said, noting that these events are creating exciting triggers across commercial banks, non-banking financial companies (NBFCs), and gold loan companies.

His firm's primary strategy for playing the artificial intelligence (AI) theme is through the power sector. Citing a Wall Street Journal report, he highlighted that AI data centres' electricity consumption in the US is projected to rise from 2% to 12% of the total by 2028. "We will have a similar situation here," he projected.

To capture this multi-decade trend, his firm has invested in companies like TD Power, JSW Energy, Transformers and Rectifiers, and Inox Wind.

For full interview, watch accompanying video

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