FII outflows not pushed by lack of AI and excessive taxes, says Shankar Sharma. Right here’s why

At a time when market commentary is more and more pushed by fast takes and handy explanations, veteran investor Shankar Sharma, who based First World, a notable monetary companies firm, in 1994, and later ventured into GQuant Investech in 2015, gives a pointy pushback, rooted not in opinion, however in knowledge.

His central argument is simple: well-liked narratives round why overseas buyers are avoiding India, be it the shortage of AI publicity or tax issues, don’t arise.

One of many dominant claims doing the rounds is that overseas buyers are favouring markets with robust AI publicity, leaving India behind. However a take a look at international market efficiency tells a really totally different story.

As per the info, a number of markets with little to no AI ecosystem have considerably outperformed. South Korea’s KOSPI Index has delivered a staggering 149.6% one-year return, whereas Taiwan’s TAIEX Index is up 96.6%. Even markets like Vietnam (74%), Brazil (59.1%), Japan (49.9%), and Pakistan (47.7%) have posted robust positive factors.

In distinction, the US, extensively seen because the epicentre of AI, doesn’t dominate the rankings. The NASDAQ 100 reveals a 40.3% one-year return, whereas the S&P 500 stands at 29.4%, inserting it effectively beneath a number of non-AI-heavy markets.
The takeaway is evident: market efficiency isn’t completely tied to AI publicity. India’s underperformance, as proven in the identical dataset, is stark. The Nifty 50 has declined 12.1% over one 12 months, whereas the Sensex is down 14.5%. Even the broader Nifty 500 has fallen 8.2%.However Sharma factors out a vital inconsistency within the prevailing narrative. India has by no means been a tech-heavy market, and but it delivered robust returns over the previous twenty years. If tech was not the motive force then, it’s troublesome to argue that its absence is the rationale now.

One other extensively cited rationalization is that taxation has pushed overseas buyers away. Right here once more, Sharma turns to knowledge.

The correlation between web FII funding and Sensex returns stands at simply 0.15 since 1999, indicating a weak relationship.

Extra importantly, the info reveals that markets have risen and fallen throughout intervals of each robust inflows and vital outflows. For example, regardless of massive destructive FII flows in sure years, market returns have nonetheless been constructive, and vice versa. Over the past 10 years, even with cumulative FII outflows of Rs -2,93,317 crore, the market has delivered a 226% return.

The implication is evident: FII flows and taxation alone don’t clarify market route.

Markets internationally have delivered robust returns regardless of AI publicity. India’s personal historic efficiency contradicts the concept tech is a prerequisite for achievement. And the connection between FII flows and market returns stays weak at greatest, he stated on microblogging web site X, previously Twitter.

(Disclaimer: Suggestions, strategies, views and opinions given by the specialists are their very own. These don’t symbolize the views of The Financial Instances)