India or US: innovation matters more to equity investors than incentives

what happened

A Moody's column notes that foreign investors are now extremely bearish on India, although just two years ago they were eager buyers of Indian shares. The author argues the problem runs deeper than weak demand: Indian companies lack technological breakthroughs, so incentives to buy their stocks will not be enough.

On an equal-weight basis the picture looks calmer. Over three years the S&P 500 beat the Nifty 500 by about 16 percentage points a year, but over five years the gap in rupee terms is small, at 12% versus 11%, and over ten years it is 14% versus 12%. Some 58% of S&P 500 stocks trade 20% or more below their all-time highs, compared with 78% of Nifty 500 stocks. Profitability does not explain the lag either: the pre-tax margin of the Nifty 500 was 12.8% in 2025, against 12.2% for the S&P 500 excluding the Magnificent Seven. Meanwhile, top Indian IT services firms spent about 1-2% of their total expenses on R&D in FY26.

why it matters

For markets, the takeaway is that the outlook for Indian equities depends on attracting technology-driven listed companies, not only on tax measures such as cutting long-term capital gains tax. This is the author's assessment, not a forecast of price moves.

instruments