Issue for foreigners is they don't pay taxes elsewhere: Samir Arora, founder and Group CIO of Helios Capital

Samir Arora, founder and Group CIO of Helios Capital, said India's earnings outlook is improving, but foreign investors remain concerned about the country's capital gains tax regime. In an interview with Ravindra Sonavane over phone, the Singapore-based fund manager spoke about various topics such as US mid-term elections, the AI investment boom and sector preferences. Edited Excerpts:

What do the US midterm results mean for geopolitics and the markets?

US mid-term elections have been as good as Indian markets could have asked for. US cannot go to war against Iran with public opinion so strongly against it. There will be objections from within the Republican Party itself. Also, India was isolated for trade actions, etc and those pressures should be less now.

Indian markets are seeing one of the longest phases of uncertainty in recent times.

The biggest reason, among various factors, has been that earnings growth in dollar terms has been very low over the last two years. But looking ahead, earnings growth has improved to 13-15%. This year and perhaps the next year, we are back to the 15% range, or around 14-15%. If currency depreciation is again 2.5%, 3% or 3.5%, then we are looking at 10-11% growth in dollar terms.


That is good enough because, if you leave out one or two companies in Korea and Taiwan, the others will not grow at even 7-8%.

Should the government look at easing LTCG only for FPIs or for everyone?

How you want to treat Indian investors versus foreign investors is a political call. But the issue for foreigners is not that. Their issue is that they are not paying taxes in other countries such as Korea, Taiwan, China, Hong Kong and elsewhere.

If your earnings grow 14-15% in rupee terms, about 3% can be lost to currency depreciation, taking returns down to roughly 12%. Then comes tax. While the headline rate is 12.5%, the effective tax outgo is closer to 14%, because not all gains qualify as long-term. After accounting for taxes and currency depreciation, you are effectively left with returns of around 8-9%. If it is the same kind of return elsewhere, investors will go to other countries.

Will tax cuts be enough to revive investor sentiment in India?

No. Nothing, by itself, is enough to revive sentiment. But this is one issue that is easy to explain, justify and understand because India stands out on it.

The question investors ask is why this issue was allowed to arise in the first place. After all, foreign investors were putting money into India in 2024 despite the tax regime. But that was when valuations were lower. You cannot expect them to keep buying at a 20% premium indefinitely.

You have seen the dotcom boom and bust. Do you see any similarities in the AI boom and the way markets are reacting?

The difference this time is that the investment is being driven by some of the world's largest companies. The economic returns may ultimately disappoint, but these companies are not pulling back on spending. That is the key point.

Take Anthropic, for example. I do not think it will generate extraordinary profits, but neither is it going to zero. It will likely earn a reasonable return over time.

Valuations across the sector are coming down, but these companies are not going away. Even as their stocks fall, they continue to double down on investment. That is the reality investors have to deal with.

Even after the recent fall in Indian markets, foreigners say markets are cheaper than before but not compared to other markets.

I don't think foreigners have any problem with the valuations of Indian companies.

Over the last three to four years, foreigners have sold massive amounts of shares in India's top 10 companies. They have sold HDFC, IT companies, consumer companies and others. They have sold massive amounts. But they did not take all their money and leave.

Of that amount, two-thirds of the money has been reinvested in India, buying companies such as Lenskart. They have not sold Eternal. They have not sold all these new-age and even old-age, established operating companies such as Siemens and ABB.

So, what is the issue? That is about growth, future readiness, innovation, reinvestment or whatever else those large companies offer.

In Samvat 2083, what would your advice be to all those investors who are confused about the market?

Welcome to the stock market. The simplest way to think about equities is to look at returns over 10, 15 or 20 years, and compare them with other asset classes and markets, not just one market at one point in time. The lesson is simple: higher long-term returns come with periods of uncertainty and volatility. If equity returns were guaranteed, there would be no debate and no need for countless books on investing.

Which are the themes that look good in India?

Broadly, outside the eight to 10 top companies that are not growing properly, most companies are doing well. By not growing properly, I mean they are growing at mid-single-digit rates. In my view, this mostly relates to IT among large-cap companies.

Large consumer companies are also affected because they have faced competition from various forces, such as e-commerce and a large number of start-ups. So, we do not like large consumer companies or large IT companies. Everything else is good.

What explains the pessimism in private banks like HDFC Bank?

Nothing explains it, except that they have also failed to innovate. Plus, the problem with taking over HDFC became too big in terms of replacing the loans that HDFC had.

In the meantime, NBFCs are growing, while the old PSUs also stopped losing money to private-sector players. Now, the stock has suffered enough, but it needs a new angle.

I think the new CEO will have to present a story. Nobody knows exactly whether it should trade at 1.4 times or at 1.0 times. They all look the same.

Would you look at IT stocks at these levels?

No, we don't think it is over. We think it is random to assume that AI has stopped. Just yesterday, Microsoft said that it wanted to fire 27% of its worldwide employees. How can our companies say that they have an opportunity?

They have been disrupted. Someday, they will stabilise, but the level cannot be the same as it was earlier.

We have seen that when things stop performing, and HDFC Bank is a good example, it takes years to turn things around. Once you are in that situation, it just goes on and on and on.