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Summary: Recently, Rajeev Thakkar, CIO at PPFAS Mutual Fund, sat down with 1Finance to discuss trending topics such as FII selling, AI’s threat to Indian IT and his outlook for the Indian equity market. Here’s what we make of it.
Foreign investors have pulled over Rs 3 lakh crore out of the Indian market in the past two years, more than Rs 1 lakh crore of it in March 2026 alone. The usual explanations followed: no AI ecosystem, inflated valuations, the securities transaction tax, operational hurdles.
PPFAS Mutual Fund’s CIO Rajeev Thakkar offers a simpler one: price.
India had run ahead of its fundamentals. The clearest evidence sat in the listed arms of multinationals, subsidiaries contributing 7-10 per cent of a parent's global revenue while trading at close to 80-90 per cent of the parent's value. That kind of gap does not survive contact with reality.
Meanwhile, global capital had cheaper, equally promising places to go. Taiwan is riding the semiconductor cycle through TSMC, Korea through its chipmakers. Money that can choose among India, Japan, Korea, Taiwan, China and Brazil goes where risk and reward align best.
Taxes aren't really a cause for concern
Taxes, says Thakkar, are real but rarely decisive. Every market extracts its toll. An Indian who directly owns US stocks can face American estate tax on death and withholding on dividends; China restricts foreign ownership in some of its most attractive sectors through opaque holding structures. Investors compare post-tax outcomes, and opportunity usually beats a lower tax rate.
His conclusion: no rescue is required. As the valuation gap closes, India gets its share back. The exodus was a re-pricing, not a verdict on the country.
He also cautions against reading too much into the size of the fall. Investors have been conditioned to treat every decline as a buying opportunity, but the current correction, roughly 10 per cent off the highs, is not comparable to past crises. The Global Financial Crisis took markets down around 60 per cent; Covid, around 40 per cent. A 10 per cent decline is welcome if you are deploying capital, but it does not mean everything is suddenly cheap, especially when valuations were not cheap to begin with.
AI will not kill Indian IT
One of the market's biggest fears today is the threat AI poses to Indian IT. The logic is specific: India has no frontier AI model; therefore, Indian IT is in trouble.
Thakkar finds the premise unconvincing. Frontier AI development sits in the hands of a few companies globally. Advanced economies like Britain, Japan and South Korea have no home-grown frontier models either, and even many of the world's largest tech firms have chosen partnerships over building their own. Treating India's lack of a frontier model as a unique failing misreads how narrow that club is.
The more important point is about economics. Investors fixate on revenue: a service that fetched 100 now fetches 90, so the business must be breaking. But if AI also cuts the cost of delivering it from 80 to 70, the profit survives. Lower costs tend to wake up demand, too. Work that never cleared the cost-benefit bar becomes viable, and volumes rise. Indian IT has navigated this before, through Y2K, the internet boom and bust, cloud, analytics and SaaS. AI is the next in that line, not the end of it.
The sectors he likes right now
Thakkar has a framework for spotting sectors worth owning: industries that endure a long, brutal phase of competition and then consolidate tend to become far more profitable.
Telecom is the clearest example, with dozens of operators eventually becoming two large, profitable private players. Airlines followed the same arc, as did stock exchanges and depositories, where one or two players now dominate.
Asked which sectors he is most constructive on today, he named three: Banking, IT services and real estate investment trusts (REITs).
REITs can deliver double-digit returns
Thakkar places REITs between equities and fixed income. The appeal is cash flow: quarterly distributions, a yield of around 6 per cent, and the possibility of another 5-6 per cent in capital appreciation. Put the two together and, in his view, REITs can deliver double-digit total returns from relatively stable, predictable assets.
What to expect from Indian equities over a decade
Thakkar's framework for long-term returns starts with nominal GDP growth, which corporate earnings and market returns tend to track over long periods. India's nominal GDP has grown at around 10-11 per cent, so expecting 11-12 per cent annualised returns from equities over a 10-year horizon is not unreasonable. But returns will not be smooth, and investors should not anchor their expectations to the exceptional years of unusually favourable periods.
His advice, in two words: sleep well. A portfolio that keeps you awake, he says, is probably built wrong.
Here's what we make of it
On AI and IT, we agree with the direction but not with applying it evenly across the sector. The cost-and-revenue logic works for firms that can capture the productivity gain and hold enough pricing discipline to keep the savings on their own books. The largest IT firms can do more than absorb the disruption; they can sell it. With deep client relationships, consulting layers and the credibility to lead AI-driven transformation, they can turn the shift into new revenue. A company that wins purely on cheap, abundant headcount has no such pivot. When AI lets clients do the same work with fewer engineers, they simply buy less: revenue falls, and the savings stay with the client, not the vendor. 'Indian IT will adapt' is true of the index, but it is not a blanket promise for the sector.
On REITs, the arithmetic is tidier in the saying than in the owning. A REIT distribution is not a bond coupon; it blends income with, at times, a return of capital, so what an investor actually pockets can be less than the headline yield suggests.
The appreciation story has a structural catch, too. SEBI mandates that REITs distribute at least 90 per cent of their net distributable cash flows, leaving almost nothing to reinvest. Every bit of growth needs fresh capital, debt or new units, both of which carry costs. India's listed REITs are also concentrated in office assets, where value depends on occupancy, rents and interest rates all cooperating. None of that is guaranteed. REITs are useful yield instruments; treat the appreciation as optional upside.
Your takeaway
The broader market has undergone a meaningful mean reversion, with valuations stretched above historical norms correcting toward sustainable levels. What comes next is less uniform: some sectors overcorrected relative to their fundamentals, while others still carry valuations that need time to earn their keep.
Earnings track the economy, and the market tracks earnings. That is what roots Thakkar's 11-12 per cent, the number worth staying with once you strip away the noise about FII flows and AI fears.
Indian markets have weathered every kind of crisis, and each recovery has ultimately been a function of earnings and patience. This phase is no different. The same patience applies to your portfolio: if the one you hold would force your hand through a steep fall, that is where to start, well before compounding can do its work.
Also read: FIIs flee, rupee at record low: India woos foreign money
This article was originally published on June 17, 2026.
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