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 ET over phone, the Singapore-based fund manager spoke about various topics such as US midterm elections, the AI investment boom and sector preferences. Edited excerpts:

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

US midterm 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 govt 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 left with returns of 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.