Foreign money to return in 2–3 quarters; IT rerating still distant, bet on AI consumers, not AI Builders: IIFL Capital MD

India's investment story is at an inflection point. Foreign institutional investors have been net sellers for years, the IT sector faces existential questions about AI disruption, and global capital continues to chase the artificial intelligence trade elsewhere. Yet R Venkataraman, Managing Director of IIFL Capital, is firmly optimistic — not through blind faith, but through a reading of cycles, fundamentals, and India's unique structural strengths. Speaking at the sidelines of the 17th IIFL Global Investor Conference, themed Entrepreneurial India, he laid out a detailed case for why the tide is about to turn.

Why entrepreneurial India is the right theme right now

The conference theme was no accident. Venkataraman points to a decade-long transformation in India's risk-taking culture — particularly among the younger generation — as the foundation for his optimism. Three forces have converged to make India fertile ground for entrepreneurship: a massive domestic consumer market, an explosion in capital sources beyond traditional bank lending (venture funds, private equity, family offices), and a world-class digital infrastructure built on India Stack, simplified KYC, and near-universal mobile internet access.

"India in spite of being a large liquid market is still a bottoms-up market," he noted — and that is precisely what makes it a market where identifying the right entrepreneurs has historically delivered outsized returns for those patient enough to look.

FII outflows are a cycle, not a verdict

The persistent foreign institutional investor exodus from Indian equities — a trend Venkataraman describes as a 10-year phenomenon — has been widely interpreted as a structural rejection of India. He pushes back firmly on that narrative. When viewed over a decade and adjusted for dividends, FIIs have actually been net negative on their India investments, a trend that has only accelerated in recent years even accounting for fresh IPO-related inflows.

His reading: this is a cycle, and cycles turn. With Indian macroeconomic fundamentals in unusually strong shape — banking sector health across PSU, private, and small banks all looking robust, credit growth decent, fiscal discipline demonstrated in the budget, and significant reforms like GST rationalisation and labour reform in place — Venkataraman expects foreign capital to begin returning within two to three quarters. The anti-AI trade narrative that has pushed global investors toward US tech and away from Indian equities will, in his view, eventually be recognised as overstated on both the fear and the benefit side.

IT sector: A plateau before any rerating

On large-cap IT, Venkataraman is measured rather than bullish. While he believes Indian IT companies have the management talent, manpower scale, and crucially the strong debt-free balance sheets to navigate AI disruption, he does not see a rerating coming anytime soon. His honest assessment is that IT stocks will likely trade sideways — plateauing — for another two to three quarters before any meaningful upswing materialises.

The AI disruption parallel he draws is instructive: just as Y2K was expected to devastate Indian IT and ultimately proved to be a multi-quarter disruption before companies adapted, he expects the current AI wave to follow a similar arc. The companies that survive and eventually thrive will be those that accept AI, embed it into their business models, and repurpose their workforce around it. Headcount may shrink, he concedes, but per-hour billing rates should rise as productivity gains are shared with clients.

What he firmly rejects is the extreme view that AI will make IT services companies entirely redundant. Customers will always need human intelligence to ensure their systems function reliably — AI is a tool, not a replacement for accountability.

The real investment opportunity: Bet on AI consumers, not AI builders

Perhaps his most actionable insight is a reframing of the AI investment question entirely. Rather than agonising over where India sits in the global AI technology stack — a race where he freely admits the US and increasingly China lead on core infrastructure — Venkataraman argues investors should focus on the entities that will use AI to deliver services at scale.

Banks, capital markets firms, and other financial services businesses are his primary examples. These are organisations with the resources, the customer base, and the operational complexity to deploy AI meaningfully — and they stand to generate significant efficiency gains and new revenue streams as a result. In his framework, India does not need to win the AI arms race to benefit enormously from it. It needs to be the world's most effective user of AI-powered services — a role its large, digitally-connected consumer economy is well-positioned to play.

The bottom line

Venkataraman's message to global investors is essentially: the cycle is turning, the fundamentals are sound, and the narrative of India as an AI-era loser is premature. Whether it is the return of foreign capital, the stabilisation of IT stocks, or the emergence of AI-powered financial services as a new growth engine, he sees the next two to three quarters as a pivot point — not a moment to exit, but one to position carefully for what comes next.