Kapoor says relative to the fears at the outset of geopolitical conflicts, investors are now seeing a more robust economic platform, which has helped drive positive sentiment
As global markets brace for the potential impact of upcoming US President Donald Trump’s trade policies, Rishi Kapoor, Vice Chairman and CIO at Investcorp, offers his perspective on the evolving economic and investment landscape. In an exclusive conversation with Outlook Business, Kapoor discussed how ongoing geopolitical tensions, from the Russia-Ukraine conflict to the Middle East unrest, are influencing investor sentiment and market performance.
He also highlighted emerging opportunities in sectors such as healthcare, IT, and manufacturing, shedding light on where India stands amidst these global challenges.
Despite the ongoing Russia-Ukraine war and the conflict in the Middle East, global markets, including those in the US and India, are reaching record highs. What is driving this resilience and are there any underlying risks?
Despite these tragic events, the global economy is still performing well, particularly driven by the US, which has been doing quite well, and the growth in markets like India and the revival we have seen in mainland China.
At the start of these conflicts, we also saw peak inflation and central banks raised interest rates significantly. The expectation was that this combination of conflicts and inflation would likely lead to an economic slowdown or even recession. However, what we have seen over the past 18 months is that central banks, especially the US Federal Reserve, have managed to avoid a full recession. Economic growth and employment have remained surprisingly strong.
Relative to the fears at the outset of these crises, investors are now seeing a more robust economic platform, which has helped drive positive sentiment and contributed to higher stock market levels.
However, it’s important to note that the bullishness in the US stock market is largely concentrated in just seven or eight stocks—primarily in future-facing technologies like artificial intelligence. The rest of the S&P 500 has not performed as well in terms of stock price and earnings, so while the market may seem strong, there’s a deeper layer to consider.
Despite a major correction in the market, valuations in the mid and small-cap space still seem high. Are these valuations justified?
Yes, valuations in certain segments, particularly in mid and small-cap stocks, are a concern. The current multiples would require very strong and sustained economic growth both at the macro level and in terms of the performance of individual companies. This leaves little room for error. If companies fail to execute as expected, the downside risk is significant.
At the same time, in the private markets, particularly in India, valuation multiples have adjusted more rationally, especially in the growth sector. So, we are seeing a barbell effect: public markets are attracting a lot of attention, and that has led to rich valuations, while private markets are more normalized. It’s important for investors to be discerning in their approach to both.
Despite solid economic growth and a market rally, foreign investors have been net sellers in two of the last three financial years. Where is India lacking in attracting foreign investment?
I think this is a positive development. For a market like India, which is still considered an emerging market, it’s ideal not to be too reliant on foreign flows. The fact that domestic investors have been able to sustain market growth, despite foreign capital outflows, is a good sign. Domestic investors understand the local market dynamics better, and their confidence in the market is actually validating India’s attractiveness to foreign investors.
As to why foreign investors have been pulling money out, it’s largely because the US market, with its strong economic growth, especially in sectors like technology, has been attracting capital. However, India’s resilience, driven by domestic support, is a positive sign for long-term stability.
What factors could trigger a downturn in the Indian markets, and how do you view the risks going forward?
It’s hard to predict exactly what will trigger a downturn, but we can focus on what could lead to a bear market. Typically, sentiment shifts are driven by policy decisions. If the policy framework remains stable and business-friendly, it will help manage market risks. While we can’t control external factors—such as geopolitical events or unexpected economic shocks—the Indian market is on relatively solid footing right now. Business sentiment is strong, and the policy environment continues to improve. This gives me cautious optimism for the long term, not just for the next few months, but for the next several years.
How do you see the impact of China’s recent stimulus package on foreign investment in India, particularly from Gulf investors?
Foreign investors have always been drawn to China, given its size and economic potential. The recent fiscal reforms in China are getting it back to where investors have traditionally seen it—as a hub of opportunity. China’s large economy, combined with its growth in domestic consumption and sectors like healthcare, technology, and tourism, continues to offer investment potential.
As for Gulf investors, I don’t think it’s a case of choosing one over the other. These investors are highly sophisticated and tend to allocate capital across a broad range of markets and sectors, considering both regional opportunities and the diversification of their portfolios. A stimulus in China might attract some capital, but Gulf investors will continue to look at India, China, and other regions based on their overall asset allocation strategy.
What investment opportunities do you see for Indian investors in the GCC region?
The GCC region presents significant opportunities for Indian investors. The demographic and economic profile of the GCC is similar to India in many ways—young, digitally native populations, with strong economic growth. However, the key difference is the higher disposable income in the GCC, with per capita GDP over $40,000, compared to India’s roughly $2,000.
For Indian investors, this translates to an opportunity to invest in markets where consumer spending power is significantly higher, which can support a wide range of sectors such as business services, healthcare, consumer goods, entertainment, and leisure. These sectors, driven by the region’s strong economic fundamentals, offer attractive prospects for Indian investors seeking to diversify their portfolios.
Where do you see the most promising investment opportunities in India?
In India, we have focused on sectors like healthcare—especially single-specialty healthcare—where we have seen strong returns. We also see opportunities in consumer goods and consumer tech, and transportation and logistics.
Looking ahead, we are particularly excited about the IT services sector, where we recently made a significant acquisition in the IT services business of the National Stock Exchange (NSEIT). Additionally, we see growing opportunities in the manufacturing sector, particularly in the context of India’s "Make in India" initiative. This is creating a fertile ground for investments in small and mid-sized businesses, whether through supply chains, transportation, or packaging services. These sectors are expected to see continued growth and are aligned with the country’s long-term economic plans.