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Speaker Details

  • Speaker Details
  • Macro Trends & The Rupee (INR) Under Pressure
  • Structural Shifts in Capital Flows
  • Currency Valuation & Outlook
  • Domestic Inflows (SIPs) vs. Foreign Selling
  • The Global AI Trade Arbitrage
  • Corporate Earnings & Growth Revisions

On this page

  • Speaker Details
  • Macro Trends & The Rupee (INR) Under Pressure
  • Structural Shifts in Capital Flows
  • Currency Valuation & Outlook
  • Domestic Inflows (SIPs) vs. Foreign Selling
  • The Global AI Trade Arbitrage
  • Corporate Earnings & Growth Revisions
Podcast/May 26, 2026/4 min read/youtu.be

FIIs Finding Better Value In Other Asian Markets: Jefferies India | 26 May 2026 | CNBC TV18

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Speaker Details

  • Mahesh Nandurkar: Managing Director (MD) and Head of India Research at Jefferies India [00:00:49].
  • Anchor: CNBC-TV18 Presenter [00:00:00].

Macro Trends & The Rupee (INR) Under Pressure

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  1. Original source (youtu.be)

Disclaimer: Orignal content owned by or sourced from third parties. It does not represent the views of 'Nuggets' platform or it's team. AI is used extensively across this platform including for summaries. Accuracy is not guaranteed, there can be mistakes. Any info or content on this platform is not a financial, legal, or investment advice. Do your own research. Refer for complete disclosures:- Terms of Use · Full Disclaimer

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Published
May 26, 2026
Read time
4 min read
Progress0%
  • Current Market Activity: Following three straight days of gains, the Indian Rupee (INR) opened down about 0.16% (shedding almost 20 paise), trading at around 95.41 to the US Dollar [00:00:00].
  • Geopolitical Triggers: Markets are reacting directly to news of US strikes in Iran, causing crude oil prices to jump more than 1% to trade at approximately $98.46 per barrel, putting immediate downward pressure on the rupee [00:00:12].
  • Liquidity Interventions: The Reserve Bank of India (RBI) has scheduled a $5 billion currency swap auction today to boost liquidity in the system [00:00:24].
  • Core Thesis: A recent Jefferies report argues that India's weakening currency is not a current account deficit (CAD) problem, but rather the result of all-time low capital flows. India's external balances remain fundamentally manageable, but persistent foreign portfolio investor (FPI) exits are becoming the primary macro risk [00:00:31].

Structural Shifts in Capital Flows

  • CAD vs. Capital Surplus: India is structurally a current account deficit country, but historically that deficit has been more than compensated for by a capital surplus. Currently, India’s CAD is highly "well-behaved," sitting comfortably under 1% of GDP—the lower side of its historical range [00:01:08].
  • The Capital Surplus Collapse: Over the last 10 years, India's capital surplus averaged 250 to 260 basis points (2.5% to 2.6%) of GDP. Over the last two financial years—FY25 and FY26—this capital surplus has collapsed to just 0.5% or 0.6% of GDP, representing a massive shortfall [00:01:43].
  • The $80 Billion Capital Flight: Over the past two years, approximately $80 billion in capital has exited India. This flight was routed directly through the listed equity markets via three distinct groups selling down holdings or exiting through IPOs [00:02:08]:
    1. Foreign Portfolio Investors (FPIs).
    2. Foreign Promoters selling down stakes in listed Indian companies.
    3. Private Equity (PE) investors liquidating stakes.

Currency Valuation & Outlook

  • Undervaluation Status: Both the RBI Governor and Jefferies' analytical models state that the Indian rupee is fundamentally undervalued. Barring extreme historical anomalies like the Global Financial Crisis (GFC), the rupee typically bottoms out at these current technical levels [00:03:00].
  • Historical Context: The currency currently exhibits a 9% to 10% undervaluation (at levels like 90 or 91 against the dollar). Historically, over the past decade, the rupee has actually averaged a 5% overvaluation, translating to a mean index level of roughly 105 [00:03:37].
  • Triggers for Strengthening: If the market sees an end or clear resolution to the Middle Eastern hostilities, the rupee has a clear path to strengthen. However, near-term foreign capital trends are tied directly to broader global investment themes [00:04:00].

Domestic Inflows (SIPs) vs. Foreign Selling

  • The Absorption Cushion: The ease with which foreign capital has been able to liquidate Indian assets is entirely due to strong domestic inflows—spanning mutual funds (SIPs), provident funds, and insurance schemes—which have seamlessly absorbed the selling [00:05:28].
  • Valuation Distortion: In the pre-COVID era, foreign selling of this magnitude would have triggered an automatic market correction. This drop in valuations would have naturally disincentivized further foreign selling. Because domestic institutional flows are absorbing the volume with ease, that automatic valuation correction has not happened [00:06:10].
  • The Premium vs. Emerging Markets: Indian equity markets trade at a Price-to-Earnings (P/E) multiple of roughly 20x. In contrast, the rest of Asia and broader emerging markets trade at multiples between 13x and 14x. This leaves India at a steep 60% to 70% valuation premium to its peers, meaning sustained domestic inflows could paradoxically facilitate further foreign capital exits [00:06:46].

The Global AI Trade Arbitrage

  • Chasing the AI Theme: Global institutional capital is aggressively chasing Artificial Intelligence (AI) as its dominant investment thesis. This capital is being heavily allocated to the US, alongside specialized Asian tech hubs like South Korea and Taiwan [00:04:26].
  • Corporate Earnings Divergence: Driven by the AI wave and a structural upward revision in DRAM and memory pricing, corporate earnings growth in South Korea and Taiwan is expanding at an explosive 50% to 60% in USD terms [00:08:13].
  • The Indian Contrast: By comparison, Indian corporate sector EPS growth is expanding at a more modest 13% to 15% in rupee terms. When adjusted to US Dollar terms to account for currency depreciation, India's growth drops into the single digits. For global asset allocators, this creates an unfavorable risk-reward dynamic against cheaper, hyper-growth AI hardware plays in East Asia [00:09:12].

Corporate Earnings & Growth Revisions

  • Downside Revisions: Rising crude oil prices, regional gas shortages, and public statements from the Prime Minister advising economic austerity are driving down corporate earnings estimates [00:10:48]. At the start of the financial year, consensus projections slated FY27 EPS growth at 16%. This has been revised downward to 13%–14%, with an expectation of another 1% to 2% downside revision to follow [00:11:17].
  • Economic Resiliency: Despite downward pressure, an absolute corporate EPS growth rate of 11% to 12% is highly respectable given the geopolitical background in the Middle East. Furthermore, underlying economic indicators—including robust credit growth, rising automotive demand, and steady consumption trends—continue to signal healthy domestic health [00:11:37].

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