India's Attractiveness Has Increased Lately

With US trade tariffs adding complexity, India's continued recovery in gross domestic product (GDP) growth and a recovery in earnings positions it favorably when compared with other global peers, says Kunal Vora, head of India Equity Research at BNP Paribas Bank. In an email interview with Sundar Sethuraman, Vora delves into the evolving landscape of foreign portfolio investor (FPI) flows into India, which until recently faced severe selling pressure due to high valuations and global uncertainties. Edited excerpts:

- Kunal Vora

FPI outflows have moderated. What's the outlook for foreign flows? India has been a well-liked market by the FPIs. India has received net FPI inflows in seven of the last 10 years, among the highest within emerging markets. However, in recent years, we have seen FPI selling due to India's relatively expensive valuation, rising US bond yields and large buying by the domestic investors.

In the last six months, we had considerable FPI selling in India largely along with most emerging markets, as money moved to developed markets. For money to move back to India, we may need some clarity on the tariff situation globally and eventually some consensus that India is among the more insulated markets. Local factors such as continued recovery in GDP growth rate and a recovery in earnings would also help.

What's your assessment of the US trade tariffs? Is India relatively insulated? How will it affect the Indian economy and markets in the long term?

The situation on tariffs is still evolving, but India is relatively well placed due to its low merchandise export dependence. India is a domestic oriented economy and amongst the sectors that are represented in Nifty 50, most sectors derive less than 10 per cent of their revenue from exports to the US with the exception of IT services and pharmaceuticals. Outside Nifty 50, sectors such as electrical manufacturing services, cables and wires and gems and jewellery are other sectors that have some exposure to the US. The aggregate earnings impact on the largecap index stocks may not be meaningful.