Foreign portfolio investors (FPIs), which bought over $2 billion worth of equities in the Indian markets in the last four trading sessions, seem to be heeding the advice of Chris Wood, global head of equity strategy at Jefferies. Wood believes with US stocks trading at a price-earnings multiple of 19.2 times, there is a case for reducing exposure to that market. Following the government’s aggressive tariff measures and the consequent weakening of the US dollar and bearish bond markets, economists are now forecasting a recession in the US economy. With the US stock markets now expected to underperform, investors are being advised to take their money to markets like China, Europe, and India. Indeed, money has already moved to China. To be sure, these are early days and, in this highly uncertain environment, a trend reversal can’t be ruled out. In fact, FPIs have sold $1.9 billion in April so far in continuation of their sales in January and February when they offloaded stocks worth $8.4 billion and $5.3 billion respectively.
However, as Wood and others have observed, with the US markets looking increasingly unexciting, global investors might be compelled to explore other options. India could be among the world’s most attractive investment destinations. The way economists see it, the US tariff measures — and their impact across the globe — will undoubtedly affect businesses back home. But, India, they believe, is relatively more insulated from the repercussions of a global trade war and could weather the storm better than others because of its large home market. In the meantime, with President Trump having postponed the imposition of tariffs on all nations, save for China, until July 9, there’s hope that a bilateral trade deal with the US will come through, cushioning the blow.
Over the longer term, experts believe India has much to gain from the shifts in the global supply chain as more manufacturers relocate their units from China to India. Moreover, with the Indian currency now more stable against the dollar and the price of crude oil well below the $70 mark, India’s external sector doesn’t face any serious challenges, at least for the moment. Emerging markets expert Mark Mobius is optimistic about India’s long-term potential with its large and young population.
In the immediate term though, the Indian economy is slowing and GDP is expected to grow only at 6% or a little over that in 2025-26, followed by 6.3-6.5% in 2026-27. While below the country’s potential growth rate, this would nonetheless be a better show than in most economies. Reflecting this deceleration are the lower earnings estimates. Since September 2024, Bloomberg consensus estimates for the BSE 200+ set of companies have been reduced by 6% for FY26 and FY27 and these could be further pared after the March quarter results season. That would make the market and stocks even more costly. At levels of 24,125, the Nifty now trades at 21 times estimated FY26 earnings and 18.3 times estimated FY27 earnings. So, India is by no means a cheap market. On the contrary, China is far less expensive, trading at close to 15x, while markets like Korea are even more attractive trading at nine times. However, foreign investors could be willing to pay more for faster-growing markets like India, especially for companies that turn in strong performances, and India could well see a disproportionate share of foreign portfolio flows in the coming months.
