MUMBAI: Foreign investors could begin returning to Indian equities as valuations in the broader market turn more reasonable and earnings growth stabilizes, but a sustained surge in inflows will likely hinge on easing capital gains tax rules for foreign institutional investors (FIIs), said Dinshaw Irani, managing director and chief executive officer at Helios Capital Asset Management (India) Pvt. Ltd.
In an interview with Mint, Irani said pockets of the market continue to offer value despite headline premiums. Even though smallcaps are quoting at a slight premium to largecaps, on a price-to-earnings-growth (PEG) basis, the ratio is almost half that of largecaps. Thus, valuations are looking attractive, he added.
Helios India, part of Singapore-headquartered asset manager Helios Capital Management Pte. Ltd, manages an estimated ₹13,000 crore in assets across mutual funds and alternatives.
Nifty 50 constituents have not seen as much of a downturn in profits as the broader market, represented by the Nifty 500. Looking at the Nifty 50 alone to gauge growth is therefore not justified. The Nifty 500, however, has seen a healthy upturn in profits in recent quarters, with Q2FY26 and Q3FY26 clocking earnings growth of 15% and 18%, respectively.
Growth in Q4 is also expected to remain in double digits, albeit lower than in the previous two quarters. It could have been stronger but for the impact of the war.
It was not only elevated valuations but also earnings growth falling off for the broader markets that made them pull back. Now, with growth rates coming back and valuations becoming reasonable, we can expect FIIs to start trickling back.
To see a deluge of inflows, the government has to relax capital gains norms for FIIs, as we are probably the only country that charges capital gains tax on foreign inflows.
Our strategy is dictated by our Elimination Investment philosophy, where two factors—negative medium-term triggers (in most cases projected financial performance) and unreasonably high valuations, which are short- to medium-term in nature—keep refreshing our portfolio depending on what is working best at a given point in time. Invariably, we have realized that this philosophy highlights stocks that offer growth at a value.
We believe this ceasefire will be permanent, and the chances of it failing are very slim. We believe our markets have seen the worst, and the scenario can only improve from here on.
There seems to have been structural damage to crude prices, as production and supply chains will take time to normalize. We expect crude prices to stabilize $20-30 per barrel above pre-war levels. This will have a telling impact on India, as we import a bulk of our crude requirements.
The impact on domestic inflation has yet to be felt, as rising prices have not yet been passed on to consumers.
Even though smallcaps are quoting at a slight premium to largecaps, on a price-to-earnings-growth (PEG) basis, the ratio is almost half that of large caps. Thus, the valuations are looking attractive.
The concern on AI plays stems from the fact that valuations have increased exponentially while revenue models remain in a fluid state. Of late, the likes of Anthropic and OpenAI have released modules that can generate revenues, but still not on a scale sufficient to justify the valuations.
India may gain if AI valuations come under scrutiny, as it is likely the only large emerging market without direct AI plays.
We continue to remain negative on IT services, as we believe AI will be a major disruptor. The Indian IT services industry will have to evolve to counter the threat from AI, which is expected to be a very painful transition.
Srushti is a markets reporter at Mint. She writes on equity markets, and her areas of coverage range from brokers and exchanges to mutual funds and the fast-evolving alternatives space, including GIFT City, from the financial capital of India. She has an experience of over three years in journalism, and has previously worked at Moneycontrol. She has an undergraduate degree in mass communication and a postgraduate diploma in business and financial journalism from Asian College of Journalism, Chennai.<br><br>Srushti prefers meeting people from the industry over making calls. Her work aims to drive impact—her story on illegal gold imports, for instance, caught the government’s attention and contributed to a policy shift. She specialises in turning complex market data into clear, engaging stories so even her grandmother could understand futures and options.<br><br>Outside of the newsroom, she enjoys spending money on jewellery and watching thriller films—especially the kind that keep her awake at night. She spends 1.5 hours a day commuting in Mumbai locals, listening to horror podcasts on her way to work. She’s also very talkative—so reach out only if you have lots of time.