India will stay the top market for 20 more years

Foreign flows to Indian stock markets have started to trickle in as geopolitical developments back home and US tariff-related fears have abated. Vikas Khemani, founder, Carnelian Asset Management, tells Puneet Wadhwa in a telephonic interview that global investors are significantly underweight on India, and that this will change over the next five to 10 years. He expects India's equity weight in major global fund allocations to increase over the next decade, which could result in an inflow of $1.5 trillion—a substantial figure given India's current market capitalization of $5 trillion. Excerpts:

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Is a bottom now firmly in place for the markets as regards tariff tantrums?

It is very clear by now that the tariff tantrum didn't have much traction. The US cannot bring back manufacturing, and tariffs only create inflation. Tariff talks are a negotiating tactic to get US companies better access, especially in China. I'm sure most of this is behind us, and the markets will discount any future developments on this front. That said, markets may take time to normalize due to other factors as well; until then, they are likely to remain rangebound.

Are there any stocks/sectors that deserve a rerating from here on out?

Interest rates coming down should generally lead to a rerating of the markets. Banking, non-banking financial companies, and industrials will do well. We think many public sector banks with strong fundamentals will see a rerating. Defence stocks could come back in focus due to the recent India-Pakistan conflict.