Extract from Bloomberg: Structural Shift in How Institutional Capital Views Indian Equity: Bloomberg

Extract from Bloomberg: Structural Shift in How Institutional Capital Views Indian Equity: Bloomberg 1. Not growth; it’s a terminal value story 2. Investors → innovation; India → consumption 3. Narrative: Its cyclical; Reality: PE de-rating coming 4. Rupee: Sign of investors losing faith INSIGHTS Terminal Value Destruction a. Terminal Value of a company represents the estimated “long-term” cash flows beyond 5 or 10 years. For decades, Indian companies enjoyed a strong terminal value because investors believed in India’s long-term earnings growth story. b. That’s no longer the case. Now global investors are not looking at India as a “buy the dip” opportunity. They believe that India’s equity "risk premium" has increased and its long-term (perpetual or terminal) "growth rate" has decreased. c. In the Terminal Value formula, when both the denominator values become adverse: (1) “Risk” increases; (2) “Growth” decreases, the terminal value (major part of a company’s intrinsic value) takes a serious hit. d. In simple words: India historically enjoyed much higher forward P/E multiples compared to the rest of the world because everyone loved India’s “perpetual or terminal” growth story. There is a structural shift in that story now. The Core Liability a. For decades, global investors assumed that India would naturally follow the Korea/Taiwan/China playbook and eventually transition to innovative technologies. That leap did not happen. b. Global investors are chasing innovation because they believe the next decade of growth belongs to AI and related technologies (robotics, etc.) India has missed that tech boom. The AI investment supercycle has bypassed India. c. Worse still, India’s IT services and GCCs now face the risk of disruption from AI, despite India’s massive IT talent and digital scale. That leaves India heavily tied to its age-old domestic consumption narrative, while investors are chasing super growth. d. Downstream Risks: IT and GCCs employ 1.5 crore white-collar professionals. If IT sector terminal values get downgraded, the downstream growth assumptions for banking, real estate, auto, FMCG, etc. may also be revised downward. e. 2027 forward earnings growth estimates for Nifty 50 have been cut in half after the Iran war. This reflects a wider acknowledgement that India’s historic PE multiple premium compared to other Emerging Markets is set to adjust. The Most Dangerous Thing a. “India is approaching a genuine strategic inflection point,” according to analyst Hebe Chan of Vantage. AI and tech ownership are defining the next phase of global growth. India is missing. b. “India’s headline indices are still living in the past – and global capital is taking note,” said Aadil Ebrahim, Equity Head of Klay Group. “Perhaps the most poignant indicator of investors losing faith in India has been the rupee.” c. “The most dangerous thing about India’s current position is that the narrative is still optimistic enough that the urgency for a strategy rethink hasn’t fully landed,” said Gary Dugan, chief executive of Global CIO. Strategy for Retail Investors Cash is the most underrated asset in India today. Years of low interest rates have altered investor psychology, forcing them to go all-in into equities. Financial history shows that such one-sided behavior does not end well. 1. Build fixed deposits. 2. Get out of leverage. 3. Avoid speculative trading. ENDQUOTE “There are all sorts of cognitive biases that impair our investing ability. But the most universal and catastrophic of them all is overconfidence – the tendency to overrate one’s own intelligence and skill.” – Charlie Munger