Markets with Bertie: Why are the foreigners flitting off ?

After a long, self-imposed hibernation, an invitation to listen to his favourite macro investor lured Bertie to a South Mumbai hotel. Bertie now thinks of himself as a reclusive genius and imagines paparazzi with flashing lightbulbs waiting for him at the entrance of every five-star hotel. Staying true to his character, Bertie quietly slid into the back rows of the large banquet hall. To his chagrin, no one recognized him and, despite a couple of attempts at some deliberate eye contact, the solitary photographer with a clunky Nikon around his neck ignored him completely. But Bertie the optimist soon saw the half-full glass; the quest for anonymity had been accomplished; it’s only the genius that remained.

With that happy thought, Bertie turned to stage proceedings, where a third-generation heir of a hallowed publication was interviewing the said macro investor. It irks Bertie that every interviewer these days seems to be fishing for a 30-second viral reel, and the baits to achieve such an outcome have become highly predictable—questions about the ruling government, the exodus of foreign investors (FIIs) from India or, if all else fails, Pakistan.

True to form, the interviewer asked about FIIs leaving the country, and the macro investor responded by saying that stocks and countries that were beneficiaries of artificial intelligence (AI) boom seem to be hoovering up all the capital flows. Because India did not have any meaningful listed AI companies, the foreigners were withdrawing. Now Bertie has heard this argument before and, even though it sounds insightful, he suspects it is not the whole truth. While answering another question, the investor highlighted that high capital gains taxation on FIIs was also impacting India’s standing amongst global peers, since most of them levied very little or no such tax. Again, Bertie felt that this was factually correct but not the entire story.

Now Bertie might be a reclusive genius who believes in his inspired hunches and singular clairvoyance, but when it comes to facts he abides by Deming’s lines: “In God we trust. All others must bring data.” Back at his desk, he looked up the foreign flows into various markets and, sure enough, FIIs had withdrawn almost 20 billion dollars from India in just the first four months of the year. But as he scrolled to similar data for the beneficiaries of the AI boom—the so-called ‘picks and shovels’ companies, which in Asia are concentrated in Korea and Taiwan—he saw the same story. FIIs had withdrawn money from there as well. In fact, they had withdrawn almost twice the amount from Korea as they had from India. So, the theory that FIIs were only buying AI winners did not really hold up.

A cursory search told Bertie that India started levying capital gains on FIIs from 2018, and not much has changed since then; yet, complaints about onerous taxation were only being brought up in the last couple of years. While ruminating over all this, Bertie stretched his legs and switched the TV channel from business news to IPL. A former Test batsman was holding forth on the technical flaws of a young superstar who, this season, was not amongst the runs. The expert talked about trigger movement, the bat swing and the foot position, pontificating on all that was not working and about what the batter should be doing. The presenter then pulled up some footage of the same batter from two seasons ago, when he was on a run-scoring spree, and all the technicalities that the expert was pointing out had remained unchanged. The only thing that had changed this season was that the batter was not getting runs.

A light bulb went off inside Bertie’s head. The FIIs were possibly just weighing relative growth and valuations of different equity markets, with an eye on not just the next twelve months’ earnings but what the sustainable number could be. They were also perhaps hamstrung by a lopsided benchmark that forced them to invest a lot in the United States. All this is not to say that the batting technique of our young batter cannot be improved. It can and should be, but laying the entire blame for the recent poor run on the bat swing or the footwork would be incorrect. Bertie was chuffed with his own metaphor and decided to include it in his next investor newsletter.

Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.