'Earnings story could bring FIIs back'

Nifty24, 252.0020.16. Motilal Oswal Midcap Fund Direct-Growth.

Key points

• Top Trending Stocks: SBI Share Cost, Axis Bank Share Rate, HDFC Bank Share Cost, Infosys Share Rate, Wipro Share Cost, NTPC Share Rate.
• ETMarkets Smart Talk India's diverse earnings story could bring FIIs back: Bandhan Life's Avinash Agarwal.
• Power shift, a déjà vu: Air India could be new CEO's toughest flight yet.
• A) The Indian equity markets have been resilient after a solid move at the beginning of this financial year.
• As per RBI data, the capacity utilisation in the system is at 77%.

Nifty24, 252.0020.16. Motilal Oswal Midcap Fund Direct-Growth. The Economic Times daily newspaper is available online now.

ETMarkets Smart Talk India's diverse earnings story could bring FIIs back: Bandhan Life's Avinash Agarwal. ETMarkets.comLast Updated: Aug 22, 2026, 09: 33: 00 AM IST.

While foreign institutional investors (FIIs) have remained net sellers over the past two years against the backdrop of India's premium valuations and an earnings slowdown, Avinash Agarwal, Senior Vice President & Head – Equity at Bandhan Life, believes the tide could turn as India offers a diverse pool of substantial firms with consistent expansion and greater earnings visibility.

India's equity markets are showing signs of renewed resilience, with improving earnings, solid domestic liquidity and a cooling global AI trade creating a more favourable backdrop for investors. While foreign institutional investors (FIIs) have remained net sellers over the past two years against the backdrop of India's premium valuations and an earnings slowdown, Avinash Agarwal, Senior Vice President & Head – Equity at Bandhan Life, believes the tide could turn as India offers a diverse pool of substantial firms with consistent expansion and greater earnings visibility.

While seeing opportunities in sizeable private banks, select consumption stocks and pockets of the mid- and small-cap space, he expects India to retain its valuation premium over emerging-market peers. Edited Excerpts – Q) Thanks for taking the time out. The market is showing signs of stablisation after posting over 1% back-to-back returns in the June & July. How are you reading markets?

A) The Indian equity markets have been resilient after a solid move at the beginning of this financial year. This positive momentum persists despite geopolitical tensions in the Middle East and subsequent oil cost volatility. The AI story has cooled off globally. It has supported India, as India is seen as a net AI loser. In the last 18-24 months, India underperformed due to the AI theme doing well globally. Live Events.

Additionally, the Q1 results have been better than expectations so far. With improving earnings expansion, India has become a more attractive market. Q) Most of the June quarter results are out. What do you create of Q1 numbers and management commentary?

A) On an average the results have been better than expectations, with management commentaries suggesting that the positive momentum should continue. There was an expectation of margins being under pressure due to inflation as crude rates and a number of other input costs had gone up due to the war in West Asia. Nevertheless, we have seen good volume expansion with margins largely maintained. Additionally, we have not seen any major impact on credit quality due to the war in West Asia. This provides us with a good base, and we expect the expansion to continue going forward. Q) Private sector capex announcements have remained subdued over the past 12-18 months. If this investment cycle continues to be delayed, could it push back the projected earnings expansion for India Inc.? What are your views on the outlook for private capex and its impact on corporate earnings?

A) While private capex did slow down for the last one year due to tariff-related uncertainties, war in the Middle East and a spike in oil rates, we feel it's a blip rather than a structural slowdown. As per RBI data, the capacity utilisation in the system is at 77%. Usually, we see ordering start when the utilisation crosses 75%. Additionally, credit expansion is picking up in the system, the balance sheets of the corporates are healthy, and the cash flow generation is solid. Therefore, we believe that the capex spends will pick up shortly. Q) FIIs inflows have remained largely positive so far in August – can we say that the smart funds is gradually moving back to India?

A) FIIs have largely been sellers in India in the last two years. This was driven by high valuations in India relative to other peers globally in FY25, earnings slowdown in India, and a pickup in earnings expansion in peer countries due to AI theme. Now there are some questions being asked on the AI theme, given the sizeable capex spends by players globally. Sizeable businesses that were generating significant cash flows are having to raise equity and debt to fund their AI capex. This has created a section of investors cautious on the theme. India, by contrast, offers FIIs a diverse set of sizeable businesses that are growing at a consistent rate and where the visibility of earnings is not based on any particular theme. India offers them one of the highest numbers of firms that have over USD 10 billion of market capitalisation. This makes India a long-term story, and we feel that structurally it is one of the most significant markets for the FIIs. Q) After the recent correction seen in 1H2026. Has the premium corrected? If not, can India continue to command premium valuations compared to other emerging markets?

A) India should continue to command premium valuation relative to peers given our solid long-term expansion visibility, the diverse nature of firms, robust positioning in some industries, and improving position in other industries. Furthermore, we are experiencing robust demand expansion within our domestic markets. It provides us with robust insulation against global market fluctuations. Q) Are there pockets of froth in the market that investors should avoid?

A) At most times we will find some segments of the markets that are expensive. While there are some segments of the market that are expensive today, it would be wrong to call them frothy. Moreover, the flattish markets in the last two years have removed the froth that was there in some pockets earlier. While the markets cannot be called cheap, we feel they are not frothy either. There are pockets of opportunity throughout the markets which can be best captured by an investor through a multi-cap fund where they can benefit from large-cap strength and the expansion and agility of mid- and small caps. Q) Which sectors still offer reasonable valuations despite the market rally?

A) We feel that sizeable banks and select consumption names offer reasonable valuations right now. Sizeable private sector banks have underperformed the markets and have come to reasonable valuations while the credit expansion is additionally picking up. Some of these sectors had high FII holding and thus obtained impacted by their outflows. Additionally, we find some select stocks in mid and small caps to be reasonably valued given their expansion prospects. Q) How are you reading into new IPOs which have began to hit D-Street after few months of pause?

A) We expect the primary market to be quite active in the near future, barring any major global event. Liquidity has been solid, with domestic funds receiving good inflows consistently. The FII flows are additionally turning positive now, and hence, there is sufficient liquidity in the markets to absorb primary matters. We are additionally expecting some substantial IPOs to hit the market. It will absorb some of this liquidity. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times).

EarningsFIIsBandhan LifeAvinash Agarwalequity markets.

Top Trending Stocks: SBI Share Cost, Axis Bank Share Rate, HDFC Bank Share Cost, Infosys Share Rate, Wipro Share Cost, NTPC Share Rate. EarningsFIIsBandhan LifeAvinash Agarwalequity markets.

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