Are you bullish on India?

The equity market, for the last two years, I would say, has been out of fashion in a way. India has been a victim, in a sense, of relatively weak investor interest. This is mainly because of two factors. One is that India is not perceived to be in the winning camp of AI, and second is the perception that India is dependent on, or vulnerable to, energy supply disruptions, tariffs, and broader geopolitical uncertainty.

Was the currency level an issue?

The track record of the Indian rupee has generally been one of depreciation. So, if you are a foreign investor, what you gain can be lost through currency movements. I think it will stabilise because many countries, including the US, Europe and the UK, have significant challenges related to refinancing public debt and managing fiscal deficits, which will put pressure on their currencies.

In the medium term, the rupee is protected because of the public debt situation in advanced economies. In the short term, currencies are driven by interest-rate differentials. So, in the short term, it can continue to be soft. But I think, given the supply-demand dynamics and the macroeconomic data, the Indian rupee should perform better.

Do you feel that AI is on a downtrend?

There has been a rush of money into data centres and memory chips, as well as into companies embedding AI into products and services, such as OpenAI, Anthropic and others. The issue is: how do you monetise it? We are seeing more and more models emerge, including inexpensive open-source alternatives. For the vast majority of use cases, you do not need frontier models. You need relatively simple models.

As a result, you will have a mix where the price of tokens declines. Every year, that will create a pricing-related drag on earnings. So, I think the market is too optimistic regarding earnings growth because this pressure will emerge, and the revenue generated will likely be lower than what many investors currently expect.

Why could a cooling of the AI trade benefit India?

India has been overlooked because investors have been focused on AI winners, particularly in the US technology ecosystem. If the market starts questioning whether the massive investments in AI can generate the earnings currently expected, investors could broaden their search for opportunities. India stands out because of its growth, strong macroeconomic fundamentals and more reasonable valuations.

Foreign investors often point to taxation and regulatory complexity when selling India. Would the market still be attractive without the recent reforms?

Today, it is more a matter of perception than reality, although perception is important for investors. What foreign investors value most is simplicity, predictability and consistency in the tax framework. As a general principle, capital gains should ideally be taxed in the investor’s home jurisdiction rather than in the market where the investment is made.

Do your clients still raise concerns about India’s tax regime?

They did a few years ago, but not recently. Taxation used to be a recurring concern among international investors. Today, those discussions are far less frequent, with investors more focused on India’s growth prospects, market opportunities and macroeconomic fundamentals.

You are responsible for managing €2.6 trillion. Where are you investing today? Which regions do you like?

In terms of countries, sectors and company size, we are much more diversified than the indices. We are overweight on emerging markets as a whole, including Latin America, Eastern Europe and India. India has not been performing that well recently, but we continue to like it. On Greater China, we are more neutral today. However, Greater China is very diverse and still offers attractive opportunities.

The issue is that benchmark indices, because of their methodology, already underweight India and China. If you look at market capitalisation, India should have a higher weight in the benchmarks. So we are overweight compared with the benchmark. And that remains a big question mark.

Should India have a higher weight in global indices?

Absolutely. India’s representation in global benchmarks does not fully reflect its economic weight, market capitalisation or growth prospects. The methodology used by benchmark providers tends to understate India’s importance. That’s why we maintain a higher allocation than benchmark weights, though still below what India’s share of the global economy would justify.

Which sectors do you like? Where are you investing?

We like dividend-paying assets, equities and emerging markets. We also like basic resources and gold. I think we are only at the beginning of a commodity supercycle. Copper is a good example, along with many other minerals that are not as easy to access. Copper is liquid, but there are several other opportunities. We also like certain energy companies, particularly renewable energy players. Renewables are now becoming genuinely profitable. Some capital-intensive sectors have become cheaper, including utilities and pharmaceuticals. So, these are relatively traditional sectors. In technology, however, we remain very selective because valuations are still too high.

Are you personally invested in India?

Yes. I sold my India exposure about six months ago but bought back two weeks ago through a Nifty-linked ETF. India represents around 3 per cent of my overall portfolio and about 10 per cent of my equity allocation. My personal portfolio is relatively low-risk, but I remain constructive on India over the medium term.

How do you see the home market evolving? Are concerns about a debt crisis in France worrying?

Europe is at something of a turning point. It is an old continent with many strengths and valuable assets. But it is also going through significant changes. Europe is not perceived as an AI thematic play. So, from the perspective of many US investors, Europe and India are often viewed through a similar lens.

I believe we are at a turning point because there is now a greater sense of urgency across Europe to act together and improve integration. There has also been a wake-up call regarding strategic autonomy. As a result, we are seeing substantial investments, particularly led by Germany, in defence, energy independence and infrastructure, all of which should support higher growth.

The challenge is financing these investments. That means some spending will need to be reduced so that resources can be reallocated elsewhere. That process is already underway. It is true, however, that the room for manoeuvre is somewhat limited.