After months of sustained selling, foreign investors are beginning to turn more positive on India, with equities now “probably oversold”, Motilal Oswal Financial Services chairman Raamdeo Agrawal said on Saturday, even as he warned that geopolitical uncertainties and elevated oil prices continue to cloud the outlook.Speaking to news agency ANI, Agrawal said that a large amount of foreign portfolio investor (FPI) capital had already left India over the past two years, making the recent shift in sentiment noteworthy.“In the last two years already we have lost a lot of FPI capital. They’ve been completely on the outflow, particularly this year… Clearly, a lot of capital has left the country,” he said.According to Agrawal, the prolonged outflows were driven by a mix of factors, including domestic market valuations, stronger returns in other global markets and the lack of a strong artificial intelligence investment theme in India. He added that geopolitical tensions had also kept oil prices high, putting pressure on India’s external position.However, he said the trend had started to change over the past week.“We are seeing for the last one week… a reversal of trend where FIIs are actually looking at India more favourably. Probably they are oversold. That’s the situation right now,” he said.
Geopolitics and oil remain key risks
While foreign investor sentiment appears to be improving, Agrawal said global developments would continue to determine the direction of markets.“How geopolitics will shape up, only time will tell. Who knows what’s going to happen in Iran? What’s going to happen to oil prices?” he said.Despite these uncertainties, he maintained that India’s domestic economy continues to perform well, pointing to healthy automobile sales, strong GST collections and robust credit growth.“I think the domestic economy is booming. I would say there is a good pickup in the economy… The credit flow is about 18 per cent or so. On the back of that, we are doing very well, except that the forex situation is a little dicey because of oil prices and whatever is happening geopolitically,” he said.
RBI may stay aligned with the Fed
On monetary policy, Agrawal said he expects the Reserve Bank of India to broadly remain on the same path as the US Federal Reserve.“Since the US has kept the rate on pause, I would think that we also follow the same trajectory,” he said, while adding that he was “not a student of monetary economics.”He also cautioned that the sharp rise in credit growth compared with last year could create short-term inflationary pressures.“Last year it was more like 9-10 per cent kind of credit growth. Now we are running at 17-18 per cent kind of credit growth… They may have to moderate the credit growth to control inflation in the short term,” he said.
Bloomberg bond index delay
Agrawal also weighed in on Bloomberg’s decision to defer the inclusion of Indian Government Securities (G-Secs) in its Global Aggregate Bond Index, saying the move reflects a cautious approach by global benchmark providers rather than concerns over India’s sovereign debt.“In the backdrop of global macroeconomic shifts and evolving benchmark considerations, top financial market experts expressed confidence that the delay in the inclusion of Indian Government Securities (G-Secs) in Bloomberg’s Global Aggregate Bond Index reflects tactical and global market dynamics rather than any fundamental flaw in India’s sovereign debt story.”“India remains on the watchlist. Even though these are Indian government bonds, global benchmark providers take a short-term, cautious assessment to ensure operational systems and market mechanisms function smoothly before full execution,” Agrawal told ANI.He said that despite volatility in global capital flows and portfolio realignments by foreign investors, India’s domestic economic fundamentals and market structure remain resilient.
Global liquidity shaping bond allocations
Echoing a similar view, Ashish Shanker, MD & CEO of Motilal Oswal Private Wealth, said that the delay in index inclusion should be seen in the context of broader global liquidity conditions and investor sentiment towards emerging markets.“Right now, it does reflect broader concerns towards emerging markets. Look at what is happening in the background – even in the US, companies are becoming leveraged… with the massive spending witnessed in the AI space, especially in data centres, most of these companies will run low on cash over time. That will put upward pressure on yields across the world,” he said.Shanker said global interest rate cycles are likely to remain elevated, but added that India’s debt market remains well placed to attract foreign capital over the longer term.“Yields will not come down easily, but India is at a slightly advantageous position because we could see more FPI flows in the near term,” Shanker added, while advising domestic debt investors to focus on simple three-to-five-year Target Maturity products and high-rated G-Secs.Market veterans at MOBIC 2026 said that although foreign institutional investors regularly rebalance their portfolios across global markets, temporary delays in benchmark index inclusion are unlikely to alter the long-term structural flow of foreign capital into India’s debt markets.
