Thoughts from the Road: India

I recently returned from time on the ground in India with Henry Kravis as well as Gaurav Trehan, Akshay Tanna, Hardik Shah, and many others from our local team. We covered multiple cities, meeting with regulators, CEOs, policy makers, and portfolio managers. Our key take-away from the trip is that, given our deep local expertise as well as favorable macro tailwinds, we see significant opportunities to both deploy and monetize capital across our Private Equity, Infrastructure, Climate, and Credit franchises.

The good news is that the acceleration in KKR’s India franchise is occurring at a time when global investors are again looking to Asia for both growth and diversification. Recent analysis done by several investment banks suggests that global investors are now among the most underweight Indian Public Equities that they have been in years. By comparison, many of the large global allocators with whom we speak remain meaningfully overweight U.S. assets, often by three to four percentage points.

The offset, however, is that sentiment across Mumbai and Delhi is decidedly more muted than on prior visits, as investors and business leaders weigh near-term uncertainty against a longer-term backdrop that continues to improve under the Modi-era reform agenda in the world’s largest federalist democracy. There is, of course, the usual handwringing concerning more competition, policy uncertainty tied to the Trump Administration, and increasing geopolitical tensions, but the dominant issue locals are focused on today is AI and what it could mean for India’s once-booming IT outsourcing services sector, still one of the country’s crown jewels. The data are starting to reflect this concern: in the first nine months of FY25-26, India’s top five IT firms scaled back hiring and added just 17 net employees, down sharply from 17,764 net additions in the same period last year. In our view, this pivot towards a leaner workforce likely signals a faster shift to automated, AI-enabled delivery models than many investors had anticipated, and a trend that could ultimately spread beyond IT into adjacent services sectors. Meanwhile, markets have taken note: Indian Equities delivered their weakest relative performance in 2025 since 1998, and inward FDI has also rolled over meaningfully after peaking around $60 billion in 2020.

Not surprisingly, AI and automation are beginning to reshape traditional headcount dynamics in India, suggesting that revenue growth is increasingly decoupling from hiring, particularly at the junior and mid-levels. This is a meaningful change. In our view, it also implies that the large publicly traded outsourcing firms may become a less reliable proxy for the broader Indian economy over time. Indeed, multiple financial institutions actually told us they are automating internal systems more quickly than expected as well as bringing more cutting-edge IT services in-house, so that they can specialize more effectively by leveraging AI internally, rather than outsourcing at scale as they have in the past. Against this backdrop, our key observations from our travels are as follows:

1. Consumption remains a growth engine, but the composition is shifting.

The consumption upgrade story remains alive and well, particularly in higher-value services such as healthcare, financial services, and education. ‘Experiences’, particularly related to sports and certain areas of entertainment, are growing faster than ‘Things.’ This thesis about wealthier consumers spending more has remained unchanged since our last visit. What has changed, however, is that recent government data suggest that lower-income consumers are doing better than in the past. By comparison, some segments of the middle-income population feel less secure relative to my prior visit. Parts of this segment have taken on debt at a time when job security is less certain and real wages are not growing commensurate with cost of living expenses on a nominal basis.

2. The Infrastructure opportunities for KKR in India remain outsized.

Key areas of focus for KKR remain roads, renewables, logistics, and related assets. The intersection of favorable urbanization trends (35-40% in India versus 60%+ in China), differentiated government support (and the need to sell assets to raise revenue and drive efficiencies), and the structural need for energy production/transmission, all suggest more tailwinds are ahead, especially for those who can bring an operational improvement angle.

Interestingly, this increase in the opportunity set is occurring at a time where our survey work shows that most global investors remain underweight Infrastructure, Asia in particular.

3. Though local Indian Equities have lagged, we think that may change by the second half of 2026.

The market has been weighed down by a combination of currency weakness, decelerating EPS, and rising AI concerns. That said, we left the trip with the view that conditions could improve meaningfully as 2026 progresses. Fiscal impulses, healthy credit creation, and rising capital markets participation by retirement savers all point to better earnings momentum in the coming year. As a result, we now think EPS for the country could grow in the mid-teens in 2026.

4. Private Markets activity in India has come of age.

We continue to see a more mature opportunity set across Private Equity, Infrastructure, and Credit. Control deal activity is more robust, local capital markets are deeper, the policy backdrop is more cooperative, and local business leaders are more engaged. Meanwhile, in Infrastructure, our time in Delhi reinforced that private sector capital will be required to meet President Modi’s ambitious goals. Finally, in Private Credit the opportunity set feels much more disciplined than what we saw during the non-bank financial company heyday just prior to COVID.

5. Currency risk now appears more manageable than it did in prior regimes. We now expect less INR depreciation than in the past.

As we show in Exhibit 14, the pace of depreciation going forward should be slower than what we observed in 2025 and materially better than the period roughly a decade ago when India ran larger twin deficits amid high oil prices and an unfavorable subsidy/tax mix. Said differently, the external vulnerability feels lower today than it did in prior stress episodes.

6. Local manufacturing is improving, but this story will take time.

The more compelling opportunities we see are not in low-value, cheap component manufacturing but in areas such as chemicals, where local demand is strong and economics are more defensible. We also spent time with one innovative entrepreneur who is working with U.S. firms that want to satisfy growing internal demand in higher value-added industrial equipment products. We like this strategy of satisfying rising local demand in addition to building a China+1 strategy. Importantly, during one corporate executive roundtable in Mumbai, many of the business leaders we met also emphasized the importance of local governments as a key differentiator in ease of doing business. For example, Apple clearly chose well in Tamil Nadu, but some global multinationals have had more mixed experiences, highlighting that execution at the local level still matters a lot.

7. AI is the biggest near-term swing factor for India’s services model.

Just as China has been the manufacturer to the world, India has been the services exporter to the world. All told, services exports are roughly $400 billion per year, and we estimate about half of that is linked directly to IT services, now more than twice the gross value of the country’s oil imports. AI will definitely force an adjustment, and there will likely be a transition period where job growth undershoots expectations. That said, our on-the-ground conversations suggest the ecosystem is already adapting, particularly via Global Capability Centers (GCCs), which are increasingly hiring leaders who can combine domain expertise with AI tools to drive differentiated outcomes. In the world we are envisioning, AI becomes an upgrade to India’s services model, not a structural negative. Just consider that there were already 600+ start-ups at India’s recent AI Impact Expo in Delhi.

8. Policy continues to support private sector growth.

We think the government is doing a solid job promoting private-sector investment. Looking ahead, energy security and reliability (including the balance between renewables and nuclear), agricultural reform, and capital expenditure are critical areas of focus (we still see too many companies where net debt positions create outcomes for shareholders where ROA > ROE). We also think pragmatic market reform, including changes to the ‘squeeze out’ rule for take-privates and the development of a convertible market, could make a lot of sense to expand India’s TAM for global allocators.

Looking at the bigger picture, we left India with two conclusions. They are as follows:

Point #1: India’s strong nominal GDP backdrop of 10-11% should not be underestimated, particularly for investors who can lean in when a sector or company is cyclically out of favor. If earnings per share can grow faster than nominal GDP through operating leverage and the multiple can rerate, the structural upside can be quite significant relative to other countries I visit around the world.

EXHIBIT 1: While 2025 Was Disappointing, India’s Market Has Structurally Compounded Much Better Than Other Emerging Markets

Equity Market Index (2000=100)

Point #2: We continue to believe that the global investment community is only now beginning to appreciate one of the core messages we laid out in our 2026 Outlook: High Grading (see the introduction for a summary): the next leg of global growth and integration will be driven by services, not goods. In a world where supply chains are being rethought, tariffs are structurally higher, and the marginal cost of capital is more expensive, the ‘goods super cycle’ becomes harder to repeat. By contrast, the services economy, enabled by technology, rising middle-class consumption, and demand for higher value outcomes, remains scalable, repeatable, and increasingly global. Importantly, India, similar to the United States, has a services engine to match its consumption upgrade story. In our view, that combination is rare, and it is why India remains one of the most compelling long-term destinations for global capital.

EXHIBIT 5: India’s Valuation Remains Elevated…

India’s Valuation Remains Elevated…

EXHIBIT 6: … But We See 2025 as the Bottom of the Earnings Growth Cycle

MSCI India Index: NTM EPS Growth