Investors in other markets would be envious of India multiples: Rich Handler, chief executive of Jefferies

Indian equities remain reasonably valued by global standards despite the market correction, and a more favourable long-term capital gains (LTCG) tax regime could further bolster foreign investor appetite, says Rich Handler, chief executive of Jefferies Group.

The veteran ibanker said Indians were being too hard on themselves, pointing to the country’s growth, demographics, work ethic and human capital, all of which much of the world envies. In an interaction with ET’s Vinod Mahanta, Handler, along with Jefferies India co-heads Mahesh Nandurkar and Ashish Jhaveri, discussed the market correction, whether changes to capital gains taxation could attract foreign investors, India’s potential as an AI hedge, the risk of an AI bubble and prospects of a broader market crash.

Edited excerpts:

Foreign investors are pulling money out of India. Is this a temporary rotation or a structural reassessment of India’s valuations? Is India’s relative underperformance primarily a question of valuations, earnings growth or its limited exposure to the global AI supply chain?

Handler: Despite the market correction, Indian stock valuations are reasonable by any measure. Some investors in other markets would be envious of the multiples they see here.

India remains attractive to global investors because of its remarkable human capital, strong work ethic, stable government, well-functioning capital markets, sound legal system and favourable demographics.

Over the last few years, AI has attracted a disproportionate share of global capital, diverting funds from India as well as non-tech businesses in the US and elsewhere. Investors have been consumed by funding every aspect of AI. While AI is inevitable, I believe we may now see a pause and a rethink of investment strategies.

This is not just about the US election. US debt markets are also signalling caution, forcing investors to reassess which AI strategies can succeed and which capital-intensive projects have the financial backing to be completed. This is reflected in widening yields of some US AI companies.

I think this is a healthy pause. Whenever you have exponential growth, it is good to have checks and balances on how much capital flows into it. India, along with other markets and non-AI businesses, could benefit from this shift.The election results may trigger further debate on the pace of AI investment. Progress will continue, but capital deployment may face greater scrutiny. I think that is healthy and ultimately good for capital markets.

I also see significant opportunities in data centres and AI in India. So this is not about investors losing faith in India. Global capital has been concentrated in one sector, with AI stocks driving the indexes. Investors and hedge funds have followed that trade. The recent six-week pause is healthy. Fundamentally, investors remain very bullish on India over the long term.

The big point of debate in India is whether scrapping LTCG for foreign investors would materially change India’s attractiveness, or is the problem much bigger than taxation? What are your thoughts?

Handler: I think so. An improvement in the long-term capital gains tax regime would make the market more attractive to investors. That would be a very constructive move. There are regulations everywhere, but simplification always makes a market more attractive to investors. Greater transparency and less tax friction also help bring more investors into India. I think these would be very constructive steps.

How much are higher US interest rates and bond yields driving capital away from India?

Handler: I don’t think India should feel defensive about its attractiveness to investors. We are investing quite heavily as a firm because we see vibrant companies with good returns on capital, strong management and businesses operating in industries growing both domestically and globally.

Capital moves in and out of markets for various reasons. Our global franchise increasingly wants to engage with our Indian research teams and the companies here because India is an integral part of global commerce.

A short period of capital outflows is not a statement on the country. It could reflect investors who were overweight India, facing redemptions or redirecting capital towards opportunities such as AI. Ultimately, relative value wins, and there is plenty of relative value in India.

Ashish Jhaveri: If you look at the three biggest factors over the last 12 months, they have been tariffs, AI and oil. India has probably been among the few large markets affected by all three. This has led global investors, who also assess markets on a relative basis, to find better opportunities elsewhere. Currency depreciation has added to the pressure. The good part is that domestic fundamentals are strong. The impact has largely been external. As these factors begin to reverse, I believe India could see better relative performance too.

Handler: Investors look ahead; they don’t wait for trends to turn. An end to the war and a return of oil prices to normal levels would benefit India. The country also has a unique opportunity in data centres, given its land, talent and innovative cooling solutions. A slowdown in US data centre investments could attract hyperscalers to India. We may also see investors move away from crowded trades, bringing a natural rebalancing. Tax reforms would add to India’s appeal. My meetings with CEOs and investors have been very optimistic. While many are unhappy with their stock prices, the underlying businesses remain strong.

You are part of the global CEO community and regularly engage with business leaders and boards. Have you noticed any shift in how they perceive India as an investment destination?

Handler: India was a big beneficiary of the shift away from China, as global investors became more comfortable with the investment climate here. I don’t think there has been any aversion to India. The combination of higher oil prices and currency pressures explains the lack of inflows. I believe that will change.

Mahesh Nandurkar: The focus on the underperforming stock market masks the strength of the underlying economy. If someone had told me on March 1, when the US-Iran conflict began, that it would last eight months, I wouldn’t have expected Indian companies to deliver 15% EPS growth, credit growth of nearly 20% and power demand growth of close to 20%. Auto demand and other bottom-up indicators are also strong. That demonstrates the resilience of the Indian economy.

Taiwan and South Korea, which attracted enormous global capital on the back of the AI and semiconductor boom, are now witnessing sharp corrections and foreign investor outflows. Yet India has not emerged as an automatic beneficiary of this shift. Are global investors reassessing the AI trade, or is this simply a rotation within emerging markets?

Handler: There is considerable uncertainty globally, and I don’t think any market is benefiting. Over the last six weeks, investors have moved into cash amid concerns about an overheated AI trade, two major wars and political uncertainty. We have seen a broader deleveraging. The money hasn’t rotated into India, but neither has it flowed into other markets. Investors are simply reducing risk.

Does the US election result change the investment outlook for India?

Handler: I think it removes one uncertainty from the table. Once investors know what they are dealing with, they can start building models and making assumptions about the election’s implications for stocks, bonds, geographies, currencies and commodities. A more balanced US government, rather than one party controlling all three branches, makes it easier for investors to assess the potential impact and make decisions.

Could India emerge as an AI hedge for investors seeking to diversify away from the increasingly concentrated US technology trade?

Handler: I don’t think India needs to position itself as an AI hedge for investors. It should focus on businesses it knows and does well; that alone is enough to attract capital. Data centres could become a significant opportunity. India has the ingredients to build a competitive advantage, and hyperscalers are looking for alternatives. India is attractive in its own right, with the potential to become more diversified if it gets the data centre opportunity right.

Nandurkar: As Richard and I mentioned, India’s growth story is largely independent of the AI trade. India will continue to grow. We are seeing GDP growth of around 7% and earnings growth of about 15%, irrespective of AI. If global investor interest in AI begins to wane, India will certainly stand out as a large market offering the prospect of around 15% earnings growth.

What are private equity investors telling you about India? Are high valuations making it harder to invest, exit and deliver returns?

Handler: We spend a lot of time with traditional private equity and infrastructure private equity investors. Infrastructure investors see India as a remarkably attractive market. They see ample deal flow and opportunities to deploy capital, backed by a stable government, favourable demographics and a sound legal system. They are very excited about the market.

Traditional private equity investors are equally attracted to India, particularly by the quality of companies and the opportunity to partner with family-owned businesses looking to institutionalise their operations. India also has a vibrant public market, offering more exit options for traditional businesses than perhaps the US. So both traditional and infrastructure private equity have a strong investment environment here. Assets under management are growing in both, and some of the most sophisticated investors in these asset classes are here for a reason.

Jhaveri: The biggest shift in private equity has been the confidence that investors can exit India and take their money out at scale, whether through M&A or capital markets. India now offers a deep, liquid market with a strong track record of exits. The range of investment opportunities has also expanded. Ten years ago, global-facing investments were largely concentrated in IT services, while domestic investments focused on healthcare and financial services. Since then, India’s manufacturing capabilities have grown significantly, opening up opportunities across auto components, precision manufacturing, infrastructure, chemicals and several other sectors. The expanding domestic market and India’s emergence as a manufacturing destination have widened the investment universe considerably.

Nandurkar: India’s infrastructure investment climate has matured, with more stable regulations and a better-developed PPP model significantly reducing investor risk. A decade ago, infrastructure investments were difficult because of construction risks and frequent project failures. Many of these issues have since been addressed. Solar projects, for instance, take just 18 months to build, compared with five years for thermal power plants. Government safeguards, including land acquisition requirements before bidding, have also reduced risks. Private investors now lend at much finer rates, while traditional banks, which once avoided power projects, have increased their credit to the sector by 20%, reflecting greater confidence.

China sustained 10% growth for years, while India has settled around 7%. Do we need a new generation of reforms to shift the economy to a higher growth trajectory?

Handler: I think you’re being too hard on yourselves. Much of the world envies India’s growth, demographics, work ethic and human capital. Comparing India’s growth rate of around 7% with China’s double-digit growth in earlier years would be unfair. Sacrificing democracy for a slightly higher growth rate in the short term would be a mistake.

Jhaveri: I think we’re too hard on ourselves. Look at the sectors India has created over the last decade: renewables, EVs, electronics manufacturing, fintech and consumer technology. These have grown into multibillion-dollar industries, attracting investment from both private and public investors. A tremendous amount of capital has also flowed into infrastructure. A lot has happened, and importantly, there has been consistency in growth rather than sharp swings between periods of high and low growth.

Is India’s IPO boom sustainable, or are signs of overheating beginning to emerge?

Handler: India is fortunate to have a steady stream of domestic capital, with long-term retail investors investing in the market. Historically, equities have outperformed fixed income over longer time horizons. By discouraging investment in fixed income and encouraging equity participation, you are promoting broader wealth creation and distribution across society. There may be periods when this doesn’t feel good, but over the long term, I think it is a smart approach and wouldn’t change it.

Nandurkar: Indian households are increasingly financialising their savings and taking a longer-term view of investments. They are no longer swayed by a few months or quarters of market weakness. The asset management industry has done a remarkable job of popularising SIPs, allowing even small investors to participate in India’s growth story. This disciplined investment approach has ensured steady flows into equity markets. As long as this continues, it creates a virtuous cycle for entrepreneurs: venture capital leads to private equity, which eventually leads to public market listings. This entire funding chain encourages entrepreneurship, even at the grassroots level. I think it’s a healthy cycle, and I hope it continues.

Are we in an AI bubble? How do you separate genuine value creation from speculative exuberance?

Handler: I’ve been through several market dislocations. I’ve been with the company for 36 years and have been CEO for 26, so I’ve seen a lot. I felt too much money was flowing too quickly into every aspect of AI. But the difference this time is that there is enormous underlying demand for AI, unlike many other areas of overinvestment in the past.

The bond market and the election cycle may help prevent things from getting carried away. When you talk about trillions of dollars in capital expenditure, it’s difficult to comprehend the scale. The technology is remarkable and will have a hugely positive impact on businesses, families and society. But a pause, with bond markets demanding greater discipline and more political debate around investment, could help prevent excessive valuations and overinvestment. I don’t think we’re in an AI bubble yet. I think we were heading towards one, and this pause could be healthy.

How ambitious is Jefferies’ India expansion? Which businesses offer the biggest opportunity — investment banking, equities, private credit or asset management?

Handler: India is one of our most vibrant businesses, and we believe enormously in its potential. We will continue to bring in the right talent. We already have critical mass, so we don’t need to hire simply for the sake of growth, but we will remain opportunistic. A lot of people want to work with us.

Our team has done a terrific job. Look at our client base, market share, relationships, research quality and support teams. We have a very enviable position.

What I’m particularly proud of is that our offices around the world, across 22 countries and 45 locations, leverage our global platforms in New York, London and Hong Kong while retaining strong local relationships and trust. That combination of global capabilities and local presence is what has helped us become the fifth-largest investment bank and the largest independent investment bank.

Building this takes decades. Things go wrong along the way, and what matters is having the right culture, consistency, putting clients first, having a sense of purpose and taking a long-term view. Our India office is a perfect example of that. We will continue to invest.

And how will AI reshape investment banking — will it simply improve productivity and margins, or fundamentally change how firms such as Jefferies compete and make money?

Handler: It’s easy to assume that AI will replace junior employees and that they have missed the party. But I told our young colleagues this morning that if they don’t embrace AI, they are depriving themselves of a tool that everyone else, including their clients, will be using. Not embracing it means taking yourself out of the game.

AI will make basic knowledge and analytical skills table stakes. Building a career in finance will increasingly depend on earning trust and respect, developing relationships and perspective, gaining experience and communicating effectively with colleagues and clients. These are the skills that will shape the next generation of finance leaders.

At Jefferies, we are not taking a top-down approach to AI. Our business leaders are working with our technology teams to identify the best applications and get the right tools to people working directly with clients.

On the operations side, AI can deliver significant cost savings and make processes such as clearing and transferring money more efficient and secure. But we are a regulated business, and adoption will take time. You cannot simply introduce systems that are accessible everywhere without first addressing compliance and security. We have to protect our foundations.

AI will also create new businesses that we can help finance. Nobody knows exactly how this transformation will unfold. But, as with previous technological shifts, those who embrace the technology while building on their human skills and staying close to clients will be the winners.

For a company like ours, the combination of an independent, entrepreneurial culture, our partnership with SMBC, a 20% shareholder, and the right technology, all directed towards serving clients, is a strong model for building the business over the next five to 10 years.

Global M&A appears increasingly driven by mega-deals, even as mid-market activity remains subdued. Is dealmaking entering a new supercycle, or is this a recovery concentrated among a handful of large transactions?

Handler: Buzzwords such as supercycles make for good conversation, but we continue to do a lot of mid-sized deals globally. We are the world’s number one adviser for transactions below $1 billion, and this has been a record year for us in that segment.

One reason mid-market activity has been subdued is that private equity firms, traditionally a large client base for us, have been slower to transact. They are still dealing with valuation issues from past investments, while fundraising has also been more challenging. As these issues clear, I expect M&A activity in the mid-market to pick up.

I’ve been doing this for 36 years and haven’t seen a supercycle yet. What I know is that you build a business every day by getting closer to clients, earning their trust, delivering transactions and generating repeat business. If your clients succeed, you succeed. That’s how we’ve built our company. And every two or three years, when you least expect it, the world turns upside down.

Investment banking has undergone significant change over the past 30 years. Traditionally, Wall Street’s largest players have relied on their balance sheets and distribution networks for competitive advantage. But independent firms such as Jefferies have gained ground. How do you see the competitive landscape evolving, and could we see further shifts in the pecking order?

Handler: In the 2000s, many firms in our industry disappeared because they were too focused on climbing the league tables, often using leverage to get there. I’ve never been focused on moving up the rankings. My priorities have been building the right capital foundation to weather market dislocations, which happen every three to four years; developing an entrepreneurial, ethical and transparent culture; putting clients first; and building a company with a purpose beyond finance.

If you stay focused on these four things, you gain ground every day, regardless of how markets move or how big or small your competitors are. That’s what we’ve done over 36 years. We’ve never set revenue or headcount targets five years out or set out to achieve a particular ranking. None of that matters in an industry that can turn upside down at any time. What matters is consistency in these fundamentals.

Globalisation is being reshaped by geopolitical fragmentation, trade wars, protectionism and the race for technological supremacy. Are we witnessing a fundamental restructuring of the global economy?

Handler: Europe is facing challenges, while Japan is making smart moves and India has enormous potential. The US, despite its uncertainties, remains the strongest capital markets platform, backed by an entrepreneurial culture. As a global firm, we look at opportunities across markets rather than just macro trends. Australia, Israel, Saudi Arabia, Abu Dhabi and Dubai are all vibrant markets. Even those affected by the war will eventually recover. I think the global landscape offers tremendous opportunities.

Are you seeing warning signs of a major market correction or even a crash? After years of strong equity markets, elevated valuations and a massive AI-led investment boom, are there excesses building up that investors are overlooking?

Handler: If I could anticipate these market surprises, I would have done so the last 12 times they occurred. I look at the global financial system, particularly in the US, and see healthy liquidity. Interest rates are higher than they were, but they are not particularly high by historical standards. The ultra-low rates after 2008 and COVID were artificial and pushed investors further out on the risk curve.

The US legal and financial regulatory systems are also functioning well. Yes, there has been excessive investment in AI, two wars are raging and interest rates are higher. But the broader financial system is working. Capital markets remain open, and markets are nowhere near distress levels. Hopefully, the wars will end, creating a much more positive environment for global investment.