Uday Kotak Warns of Declining Entrepreneurial Spirit, High Stock Valuations & Capital Outflows

Uday Kotak highlighted concerns over India’s declining entrepreneurial spirit, urging younger business heirs to focus on building enterprises rather than just managing wealth. He warned about high stock market valuations and foreign investor outflows, which could pressure India’s forex reserves. Kotak called for a cohesive policy strategy to balance liquidity control and currency management for sustainable economic growth.

CONTENT:

• Uday Kotak on Trump Tariffs, FII Selling, and India’s Economic Outlook

Uday Kotak Warns of Declining Entrepreneurial Spirit, High Stock Valuations & Capital Outflows

Uday Kotak, Founder of Kotak Mahindra Bank, has expressed concern about the declining entrepreneurial spirit in India, particularly among younger business heirs. Speaking at the Chasing Growth 2025 investor event in Mumbai, Kotak observed that many from the younger generation are prioritizing investment management—such as trading in stocks and mutual funds—over building and running businesses. He urged them to focus on creating and expanding enterprises rather than simply managing family wealth.

Kotak emphasized that if individuals sell a business, they should consider starting or acquiring another one instead of settling into financial investment roles too soon. He questioned why individuals in their mid-30s and 40s were not more engaged in operational business activities, stressing that economic growth relies on entrepreneurial ambition.

Beyond domestic concerns, Kotak also highlighted risks associated with India’s high stock market valuations and ongoing capital outflows driven by foreign investors. He pointed out that while retail investors continue pouring funds into equities, foreign investors are capitalizing on high valuations to withdraw profits. Additionally, he noted that U.S. monetary policies, particularly rising Treasury yields and a strong dollar, are pulling capital away from emerging markets like India.

Kotak provided an overview of India’s external financial position, revealing that repatriable capital stock stands at $2.5 trillion, including $800 billion in foreign portfolio investments (FPI), nearly $1 trillion in foreign direct investment (FDI), and $700 billion in external commercial borrowings. With FPI and FDI outflows already occurring, he warned that even a 5% capital flight—around $100 billion—could strain India’s forex reserves or lead to rupee depreciation.

To address these challenges, Kotak urged policymakers, including the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the finance ministry, to develop a cohesive strategy. He stressed the importance of balancing domestic liquidity control with currency management to mitigate risks posed by foreign capital outflows and ensure sustainable economic growth.

Uday Kotak on Trump Tariffs, FII Selling, and India’s Economic Outlook

At the Chasing Growth 2025 conference, Uday Kotak, Founder & Director of Kotak Mahindra Bank, shared his views on India’s economic landscape amid evolving global financial conditions, foreign investor trends, and the potential impact of new US trade policies under Donald Trump.

Shifts in Foreign Institutional Investment (FII) Flows

Kotak highlighted significant changes in capital inflows, primarily driven by the strong US dollar and investors’ increasing preference for dollar-denominated assets. The net FII outflows in 2025 have already exceeded ₹1.15 lakh crore, with ₹87,000 crore withdrawn in January alone as the US Dollar Index peaked at 110. Despite some moderation in February, foreign selling has continued, nearing ₹29,000 crore in outflows for the month.

He pointed out that global markets are now highly concentrated, with the US stock market accounting for about 70% of the total global market capitalization. Since India opened its foreign equity portfolio in 1995, its foreign capital stock includes:

• $800 billion from Foreign Portfolio Investors (FPI),
• $900 billion to $1 trillion in Foreign Direct Investment (FDI), and
• $500–600 billion in external commercial borrowings.

Despite this, Kotak reassured that India’s forex reserves remain robust at $560 billion (adjusted for forward positions), with a current account deficit of just 1.2–1.3% of GDP ($50 billion).

Stock Market Resilience

Kotak emphasized that the Indian stock markets remain resilient and continue to be a viable destination for foreign investors. However, the markets have experienced some corrections, with the Nifty and Sensex both down around 3% in 2025 so far, struggling near key psychological levels. Analysts from Kotak Institutional Equities predict that midcap and smallcap stocks could face sharper corrections in the near future due to ongoing FII outflows and weaker earnings growth.

Impact of Trump’s Tariff Policies

A major topic of discussion was President Donald Trump’s proposed 25% tariffs on auto imports, as well as additional duties on semiconductors and pharmaceuticals. While the details of the tariff structure are still awaited, Kotak highlighted that India currently imposes around 10% tariffs on US goods, while US tariffs on Indian goods stand at about 3%.

Kotak cautioned that trade protectionism could disrupt global supply chains. If major exporting nations face US tariffs, they may redirect surplus goods to other markets at 30–40% lower prices, making it harder for Indian industries to compete.

While India currently enjoys a $40 billion trade surplus with the US, Kotak warned that Trump’s focus on reducing the US trade deficit could increase pressure on India’s current account deficit. He suggested that India may need to restructure its trade relationships with multiple economies to maintain balance.

Key Policy Recommendations

Kotak outlined several measures that India must take to remain competitive in the global economy:

1. Enhancing productivity – India must focus on efficiency and innovation to stay ahead.
2. Avoiding excessive protectionism – Restrictive policies may hinder India’s ability to integrate into global trade networks.
3. Increasing the manufacturing sector’s contribution to GDP – This would reduce reliance on imports and create employment opportunities.

Policy Execution and Economic Strategy

Kotak stressed that India’s long-term economic stability depends on effective policy execution at both macroeconomic and microeconomic levels. He called for a gradual approach to fiscal consolidation, highlighting the government’s plan to reduce the fiscal deficit to 4.4% of GDP by FY26 while ensuring steady economic growth.

He also cautioned against the risks of excessive financialization, where investors overcommit to equities without fully understanding valuations. Additionally, he underscored the transformative impact of artificial intelligence on employment and emphasized the need for India to create new opportunities in a post-AI world.

Overall, Kotak emphasized that India must navigate global economic shifts strategically, focusing on productivity, innovation, and long-term financial sustainability while maintaining its appeal as an investment destination.