Recent developments — proposed changes to the goods and services tax (GST) rates and S&P Global Ratings’ upgrade of India’s long-term sovereign credit rating to BBB, with a stable outlook, — may not be enough to bring foreign investors back to Indian markets in a rush, feel analysts.
For a meaningful return to Indian shores, an improvement in corporate earnings along with a stable policy framework —both back home and globally (in the form of tariffs) — is a must, they suggest.
“Policy initiatives from the government on the GST front with indications of next generation reforms have improved market sentiments significantly.
"However, the fundamentals (earnings growth) will take time to respond.
"A sustained market rally will happen only when we have indications of earnings revival,” said V K Vijayakumar, chief investment strategist at Geojit Investments.
So far in 2025 calendar year (CY25), foreign institutional investors (FIIs) have dumped Indian equities worth Rs 1.17 trillion, shows NSDL data, with January seeing the highest sell-off totalling nearly Rs 78,000 crore.
In August, they had already sold stocks worth Rs 22,200 crore.
Foreign investors, said Jitendra Gohil, chief investment strategist at Kotak Alternate Asset Managers, are looking to invest more in emerging markets (EMs) now as the artificial intelligence (AI)-led rally in the United States has made related stocks overheated.
“India has been an underperformer due to a soft economic patch and corporate earnings.
"The second half of the financial year 2025-26 (FY26) could see more policy initiatives by the government...
"The only surprise element amid all these positives is how the tariffs play out, which could keep investors at bay,” he said.
As regards corporate earnings, the Nifty, according to analysts at Motilal Oswal Financial Services (MOFSL), delivered an
8 per cent year-on-year (Y-o-Y) growth in profit after tax (PAT) versus forecast of 5 per cent uptick.
“Net income and earnings before interest, taxes, depreciation and amortisation (Ebitda) of the Nifty-50 Index is likely to grow 9.6 per cent and 13 per cent in FY26...” wrote Sanjeev Prasad, managing director and co-head of Kotak Institutional Equities (KIE), in a recent note.
That said, tariff-related development that triggers a correction in Indian equities, analysts advise, should be used to buy from a long-term perspective.
“The 50 per cent tariff should not be seen as a reason to sell Indian equities.
"Rather it is probably a reason to buy them. It is only a matter of time before Trump backs off the stance (on tariffs on India).
"For investors, it is now too late to cut India exposure with valuations now back near the 10-year average,” said Christopher Wood, global head of Equity Strategy, Jefferies.
