Ridham Desai says AI boom may delay return of foreign flows to India
Ridham Desai, Chief Equity Strategist at Morgan Stanley, attributed low foreign investor interest in India to stronger AI-driven growth opportunities in markets like Korea, Taiwan, and the US. He noted that India’s earnings growth (12-14%) lags far behind AI-linked markets (30-50%+), delaying foreign capital returns despite domestic retail investor support and potential future corporate equity issuances.
Morgan Stanley’s Ridham Desai said foreign investors are prioritizing markets tied to the AI supply chain, where earnings growth far exceeds India’s 12-14% rate. Markets like Korea, Taiwan, and the US are seeing 30-50% growth, with Korea alone up 60% from its March-end low, making India less attractive despite strong valuations. Desai emphasized that the AI-led capital expenditure cycle remains intact, with no slowdown expected in the next 12-18 months. Morgan Stanley has increased its AI capex forecast, reinforcing investor focus on high-growth sectors outside India. While foreign participation remains weak, domestic retail investors are driving record inflows during volatility, signaling a shift in household savings toward equities. Desai suggested foreign exposure to India could rise if corporate equity issuances increase, reducing competition with retail flows. Passive investment strategies have contributed to recent outflows, as India’s weighting in global indices adjusts with relative performance. Growth expectations, not just actual growth, must shift for foreign interest to return, Desai noted. India’s growth peaked in September 2024, with valuations declining since then. Despite a slight recovery in Q4 and Q1 2025, earnings growth in AI-linked markets remains far superior, with no near-term signs of deceleration.
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