Foreign investors interested in India, but fussy about valuations: Kotak Institutional’s Pratik Gupta

Foreign institutional investor(FII) interest in India is growing, but they are closely watching valuations for a good entry point, said Pratik Gupta, CEO and co-head, of Kotak Institutional Equities. He was speaking at a media conference.

According to Gupta, many of the FIIs are "keeping a watch on valuations, doing their research, and investing in meaningful corrections.".

FIIs, he says, today have a much more positive long-term outlook on India and belief in the market's ability to bounce back.

This is unlike in the past when the general view among FIIs was that India was always a cyclical market that did well in some years and not as well in others.

One of the reasons for the renewed interest has been India's inclusion in the MSCI Index, along with the challenges being faced by China. These, along with economic and political stability make India a strong alternative.

But Gupta adds that while they are more interested, they are equally well-researched. Over the last year, the market has gone up, making valuations expensive. “Foreign investors are doing their homework, meeting companies, and buying when there are meaningful corrections,” Gupta said.

"Many global investors expressed hopes that a likely Fed rate cycle later this year would trigger more inflows into EM funds or even India-dedicated funds, and most are expecting China to remain range-bound this year," he added.

While China's decline impacts the inflows in emerging market portfolios, Gupta added that there has been a slow increase in demand for ex-China EMs, which could benefit India and result in more emerging market inflows next year.

On the sectors that FIIs are finding interesting, Gupta says that while banks continue to be an area of interest, the approach is now broader and also stock-specific.

Domestic investors remain optimistic

These valuations, he adds, are also a concern for Indian investors and fund managers, but most local fund managers, added, are not seeing any major signs of worry in terms of a slowdown in inflows, with most retail and HNI investors seeing gains over the last 12–18 months.

As per AMFI data, inflows into India's equity mutual funds in January 2024 rose to a nearly two-year high in January, a 28 percent rise sequentially to $2.62 billion.

"Even a 10 percent market correction is unlikely to shake their faith in Indian equities," he added. Fund managers with PSU stocks and small caps are maintaining some caution.

"I think we are beginning to see a little bit of tiredness over there, some rotation out of small caps, but there is still enough enthusiasm," he added.

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