Akash Prakash isn’t a household name in India, so nobody would fault you for not knowing who he is. But he is fairly well known in the investing community. And since this newsletter is for people who invest in the capital markets, whether directly picking up stocks or through mutual funds, let’s take a minute to talk about what Prakash talked about this week.
Prakash is the CEO of Singapore-based Amansa Capital, a fund management company that actively invests in Indian equities. This week, he joined a growing chorus of people expressing concern about the state of the Indian markets.
In a column in the Business Standard newspaper, Prakash noted the pullout of foreign portfolio investors from Indian stock markets over the past couple of years and highlighted some reasons for the withdrawal. He pointed out that FPIs have taken out almost $65 billion since markets touched record highs in September 2024, which means net inflows into India over the last decade were practically zero.
This is not all. Foreign investors are doubting India’s significance as an investment destination, foreign ownership in Indian stocks has fallen to record lows below 15%, and India’s weight in the MSCI Emerging Markets index has fallen from about 21% in September 2024 to around 10%. A lower weight influences allocations by funds that track the index.
While India lagged, investors holding Korean and Taiwanese equities experienced much stronger returns over this period thanks to their significant exposure to semiconductor and AI-related companies.
India has also faced pressure from oil prices and currency weakness. Brent crude trades above $115 a barrel amid concerns over supply. Higher oil prices increase India’s import bill and can add to inflationary pressure. A weaker rupee has further reduced the dollar value of returns earned by foreign investors—a 13-14% drop in the Nifty in rupee terms and a 10-12% fall in the rupee’s value itself means FPIs are sitting on losses of around 25%. To add to the problems, higher US Treasury yields that have topped 5% offer an alternative to riskier assets.
Of course, big fund managers and FPIs aren’t the only ones feeling the pain. Thousands of individual investors who flocked to the markets in the post-Covid era—especially after 2023—might have been going through the same doubts after seeing little gains or even losses in their portfolios.
To be sure, Indian authorities are responding. The government has said it is open to discussing changes in the capital gains tax on equities, after recently removing the tax on government bonds for foreign investors. There are proposals that suggest the capital gains tax can be reduced or FPIs may be allowed to calculate gains in dollar terms. Another media report said the RBI could take more measures to stem dollar outflows by resident Indians. While this may ease the pressure on the rupee, it could make investing in overseas equities more challenging for local investors.
While all these developments are occurring together, they do not necessarily have the same explanation. Selling may reflect current market conditions but a lasting reduction in portfolio allocations would point to a more fundamental change in how global investors view India.
Still, the numbers establish a difficult period for Indian equities. Whether foreign investors are making a lasting change to their allocations remains an open question. What should retail investors do? Well, all we can say is stick to the asset allocation but adjust if required, keep an emergency fund and insurance in place to deal with the uncertainties of life, stay the course, and above all, stay healthy.
Reading the Lights
Let’s now move on from markets to macroeconomics and talk about an interesting experiment underway at the Reserve Bank of India to better estimate how the economy performs at the state-level.
The Indian government publishes GDP estimates quarterly for the entire country as a whole, but understanding how individual state economies are performing is harder. State-level Gross State Value Added (GSVA) figures typically arrive 12 to 18 months after the period they describe, leaving a significant gap in timely official data on state economies.
Researchers at the RBI have tested whether satellite images of night-time lights and Google searches can offer an earlier, if imperfect, picture.
Their study, published in the RBI Bulletin in October, combines satellite measurements of light intensity with Google Trends data to estimate quarterly growth in Gujarat, Maharashtra and Karnataka. The results are encouraging, but they do not yet establish a reliable way to track state output in real time.
The researchers use NASA’s Black Marble satellite data to track changes in night-time light intensity, alongside Google search-interest data across categories including travel, jobs, real estate and shopping. These indicators feed into a statistical model that estimates year-on-year quarterly GSVA growth.
Against a benchmark model based on past growth, the combined model reduced root mean squared error (RMSE), a measure of estimation error, by about 38% for Maharashtra, 54% for Karnataka and 62% for Gujarat. It also performed better than a model using night-time lights alone in all three states, though the improvement was small in Maharashtra.
The two indicators capture different aspects of activity. Night-time lights track changes in illuminated areas; search patterns offer another signal of economic behaviour. Neither measures production directly. Their value lies in whether they help estimate activity before official figures arrive.
That is where the limits of the exercise become important. Official GSVA figures are annual, so the researchers constructed quarterly benchmarks by mapping the seasonal pattern of national GDP onto annual state-level estimates. The model was tested against these constructed quarterly figures, not against independently published quarterly state output. Its reported accuracy therefore shows how well it reproduces those estimates, not how closely it tracks a separately observed measure of quarterly state growth.
The gains also vary across states. Adding Google Trends made little difference in Maharashtra compared with the night-time-lights model, but improved estimates more substantially in Karnataka and Gujarat. This suggests that indicators which work together in one economy may offer less additional information in another.
The researchers also found that lagged Google Trends indicators did not consistently provide predictive information. In this model, their contribution appears to be largely contemporaneous. And because the study covers only three industrial states, with results affected by the suitability of satellite data, it cannot establish how well the approach would work across India.
The exercise points to a useful possibility, rather than a replacement for official statistics.
Satellite lights and search behaviour may help fill some of the wait for state-level data, but their usefulness depends on the quality of the benchmark and how consistently the relationship holds. Measuring an economy between official releases is not simply a matter of finding faster signals; it also requires knowing what those signals can reliably tell us.
Holding Pattern
From macroeconomy, let’s now switch to monetary policy and how some major central banks acted this week.
The US Federal Reserve held its benchmark rate in a range of 3.75% to 4% this week. Its statement described domestic spending as resilient, productivity growth as strong and capital investment as robust. Unemployment had changed little, but inflation remained elevated. The decision was split 10-2, with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack favouring a quarter-percentage-point increase.
The dissent matters because it shows some policymakers judged the case for tighter policy strong enough to act immediately. The Fed left rates unchanged, saying it needed more information to determine the appropriate policy stance, though analysts point out that the decision to hold comes days before the Nov.3 midterm elections in the US.
Across the Atlantic, the European Central Bank also kept its deposit rate unchanged, at 2.5%, on Thursday, following rate increases in June and September. Euro-area inflation reached 3.8% in September, its highest level since September 2023, as energy prices rose amid the conflict in the Middle East.
But keeping interest rates unchanged does not mean central banks face the same choice. Both the Fed and the ECB may have paused, but the risks shaping their next decisions differ.
The Fed is confronting persistent inflation alongside an economy it describes as expanding at a strong pace. The ECB is dealing with an energy shock that threatens to raise prices while weakening growth, and said the full effects of the energy shock were still unfolding. It warned that a more prolonged shock could lift inflation and reduce growth, including through indirect and second-round effects if higher costs spread more widely.
The two pauses, therefore, leave different questions unresolved. In the US, the Fed must judge whether an economy showing strength can coexist with inflation that remains too high. In the euro area, the ECB must assess how much to respond to an energy-driven rise in prices when tighter policy could deepen the slowdown.
Neither bank has committed to its next move. The Fed says it needs more information to determine its policy stance, though it is widely expected to increase rates in December. The ECB is watching whether higher energy costs spread into wages and broader prices. Their next decisions will depend on how the evidence develops – whether inflation remains persistent in the US and whether Europe’s energy shock becomes embedded in wider price pressures.
The Price of AI
Let’s now take a look at quarterly earnings of some of the world’s biggest technology companies. Financial results released by tech giants this week show that investors are still seeing strong demand for artificial intelligence, but expectations around the companies building it are becoming more exacting.
Cloud growth shows that customers are buying computing capacity. It does not yet establish how much of that demand will translate into lasting returns on the infrastructure being built. As investment rises, markets are beginning to look more closely at the cost of meeting that demand. The latest results from Microsoft, Alphabet, Meta and Amazon show why the distinction matters.
Microsoft reported September-quarter revenue of $92.28 billion, up 20% from a year earlier. Azure revenue rose 48% to $33.17 billion, beating expectations. Free cash flow fell 27% to $18.63 billion as capital expenditure and finance leases reached $45.2 billion. Yet cash flow was still well above analysts’ estimates.
Spending also came in below the company’s indicated level because some capacity deliveries were delayed, rather than because its investment plans had changed. The quarter illustrates how the timing of infrastructure spending can affect reported cash generation without establishing whether the investment is paying off.
Alphabet’s results offered a different picture. Google Cloud revenue rose 103% to $30.71 billion, while advertising revenue of $82.01 billion fell short of forecasts. Free cash flow turned negative at $9.06 billion. Heavy infrastructure investment was a major factor, but the quarter also included a $5.2 billion cash payment related to an earlier European Commission fine and an inventory build for sales of its own AI chips. These are distinct demands on cash: the payment was a one-off outflow, while inventory represents resources tied up ahead of future sales. The deficit reflects more than the cost of expanding AI capacity. Rapid cloud growth alone does not establish how quickly that investment will generate returns.
Meta reported revenue of $64.60 billion, above expectations, and gave a stronger-than-expected fourth-quarter outlook. Operating income fell 37%, partly because of a $9.89 billion legal charge related to an agreement with US state attorneys general. Higher infrastructure expenses and third-party AI costs also contributed. Free cash flow turned negative at $2.12 billion, while the company raised the lower end of its annual capital expenditure forecast to $135 billion from $130 billion. The legal charge complicates comparisons with earlier periods, but rising investment and operating costs remain part of the picture.
Amazon’s results added another dimension. AWS revenue rose 39% to $45.98 billion, its fastest growth in nearly five years. At the same time, purchases of property and equipment reached $77.3 billion in the quarter, more than double the year-earlier level. Amazon retained its 2026 capital expenditure forecast of about $220 billion. Free cash flow was negative $42.4 billion over the trailing 12 months, compared with positive $14.8 billion a year earlier. The company attributed the deterioration primarily to higher property and equipment purchases, largely reflecting AI investments. Operating cash flow over the same period, however, rose 29% to $168.3 billion. Amazon is generating more cash from operations, but a much larger share is being absorbed by investment.
The figures are not directly comparable measures of AI investment returns. The free cash flow numbers for Microsoft, Alphabet and Meta refer to the quarter, while Amazon’s covers 12 months. They also reflect different business operations, investment timings and, in some cases, one-off costs.
What they collectively show is that demand for computing capacity is growing alongside the capital required to supply it.
The longer-term question is how much durable cash flow this infrastructure can generate relative to the capital committed to building it.
The latest earnings establish the scale of demand and investment, but not the returns they will ultimately produce. For investors, the distinction between growth and the economics of that growth remains central to assessing the AI investment cycle.
Market wrap
A rally in IT stocks and hopes the government would cut the capital gains tax pushed India’s stock market benchmarks higher this week and helped end a two-month losing streak in October.
The NSE Nifty climbed 2% while the BSE Sensex inched 1.8% higher this week. For the month, the Nifty gained 1.9% and the Sensex surged 2.7%.
In the broader market, the Nifty Midcap 150 and the Nifty Smallcap 250 rose 2.2% and 2.3% this week but lost 3.4% and 4.2%, respectively, in October.
The Nifty IT Index rose 1.9% this week, stretching its monthly gains to a staggering 17.7%. Tata Consultancy Services was the top performer during the month and soared 22%. Infosys, HCL Tech and Tech Mahindra gained between 16% and 19% this month.
For the week, Tata Group’s Trent was the biggest gainer with a rise of 10.6% after reporting strong earnings. Dr Reddy’s Labs, Apollo Hospitals, Adani Ports, BSE and Eternal rose 8-10% each. Another eight stocks including InterGlobe Aviation, Kotak Mahindra Bank, Tata Consumer, and Larsen & Toubro jumped 5-7% each.
Shriram Finance was the biggest loser this week, falling 4.8% after it cut its loan growth forecast for the year and warned of higher credit costs.
Heavyweight Reliance Industries slipped over 2% despite its Jio Platforms unit making a blockbuster debut. Coal India, ONGC and Mahindra & Mahindra were among the others that ended in the red.
Earnings snapshot
- IndiGo Q2 loss at Rs 2,055 crore versus a loss of Rs 2,614 crore a year earlier
- Coal India consolidated net profit jumps 53% to Rs 6,516 crore but lags forecasts
- Asian Paints consolidated profit up 7.5% at Rs 1,068 crore but misses analysts’ estimates
- Godrej Consumer consolidated net profit rises 14% to Rs 523 crore, misses estimates
- Tata Consumer profit grows 16% to Rs 469 crore, matches estimates
- Trent consolidated net profit climbs 23% to Rs 464 crore, revenue rises 22% to Rs 5,873 crore
- Adani-owned Ambuja Cement’s adjusted net profit falls 34.7% to Rs 169 crore
- Adani-owned ACC’s profit plunges 91% to Rs 101 crore
- Adani Enterprises’ adjusted profit before tax doubles to Rs 2,002 crore
- Adani Ports reports 16.5% rise in profit to Rs 3,622 crore
- Larsen & Toubro profit surges 33% to Rs 5,202 crore
- Hyundai Motor India profit slumps 24% to Rs 1,196 crore on higher costs
- Maruti Suzuki profit falls 27% to Rs 2,415 crore, lags analysts’ estimates; plans price hikes
- Hero MotoCorp profit after tax up 4.5% at Rs 1,456 crore, misses expectations
- TVS Motor profit jumps 52.4% to Rs 1,377 crore, beats estimates
- Bajaj Auto reports 35.3% rise in profit to Rs 3,354 crore, beats forecasts
- Diageo-owned United Spirits’ Q2 profit falls 2% to Rs 462 crore
- Fevicol maker Pidilite’s consolidated net profit rises 6% to Rs 615 crore
- Meesho consolidated net loss contracts to Rs 132 crore from Rs 411 crore year ago
Other Headlines
- Jio soars 27% in trading debut; No.2 by market cap after RIL with $137 billion valuation
- Microsoft offers buyouts to around 60,000 employees globally, including India, to cut costs
- IndiGo says fare increases inevitable as fuel costs rise
- Equitas Small Finance Bank’s long-time CEO PN Vasudevan resigns over conflict of interest
- India’s GDP to grow 7.3% in 2026-27: Finance ministry’s October economic review
- India’s September industrial output grows 6.7% year on year
- SEBI considering domestic AI model for securities trading, says chairman Tuhin Kanta Pandey
- TVS Motor to spin off consumer-finance business into separately listed firm
- Carlsberg India files updated papers for IPO, to offer 86.42 million shares
That’s all for this week. Until next week, happy investing!
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