'I won't be surprised if we start seeing positive FII inflows in March'

Most outflows were driven by hedge funds, not long-term sovereign wealth or pension funds. Aniruddha Sarkar CIO at Quest Investment Advisors

- Dipti Sharma

Indian equities, which have been under relentless selling pressure over the past six months, appear to be bottoming out, and they are unlikely to see any major decline from the current levels, Aniruddha Sarkar, chief investment officer (CIO) and portfolio manager at Quest Investment Advisors, said. "We're not necessarily at the absolute bottom, but we're hovering close to it," Sarkar told Mint in an interview.

From a lofty 24 times price-to-earnings multiples to around 19x PE on FY26 estimates and 17.5x on FY27, Sarkar said that valuations now look far more reasonable.

As Trump's tariff war raises the spectre of a US slowdown and fuels inflation, and as the dollar's strength peaks, there's little reason for foreign institutional investors (FIIs) to keep pulling money out of India, he said. "I wouldn't be surprised if we start seeing positive FII inflows in March," he said.

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What are the reasons for the correction in India, which has made it one of the worst performing markets of 2025?

India's valuation premium over other emerging market peers has long been backed by strong corporate earnings growth. Post-covid, India's corporate earnings expanded at 15-18% annually, which was much higher than the global average of low to mid-single digits. This earnings growth in India was driven by a surge in domestic consumption and a pick up in manufacturing. A revival in real estate demand after nearly 5-6 years also fuelled this earnings growth.

The tide began to turn in FY25, as India was in the midst of back-to-back elections since the beginning of last year and that took a toll on government capex. Also, low-income growth over the past one year impacted consumption among the urban middle class. These got reflected in weak earnings growth in the H1FY25. After the September-quarter numbers, questions arose on the justification for India's premium over the MSCI EM Index and MSCI World Index.