The End of US-India conflict has boosted optimism, but FIIs remain cautious. CIO P. Krishnan explains why global risks, inflation concerns, and sector-specific challenges continue to shape investment decisions in India.
The End of US-India conflict has sparked optimism across financial markets, with many expecting foreign institutional investors (FIIs) to return aggressively to Indian equities. However, according to P. Krishnan, Managing Director and CIO of Equity Asset Management at Spark Asia Impact Managers, that expectation may be misplaced.
Krishnan believes investors should avoid assuming that improved diplomatic relations will automatically translate into large foreign investments. While geopolitical stability is a positive development, several economic challenges continue to influence investment decisions.
Global Risks Are Keeping FIIs on the Sidelines
Despite the easing of tensions, foreign investors remain cautious. Rising inflation in major economies, concerns about a potential global slowdown, and tighter monetary policies have created uncertainty across financial markets.
Krishnan points out that India still faces balance-of-payments pressures, making it unrealistic to expect FIIs to start buying simply because geopolitical concerns have eased. Instead, institutional investors are carefully evaluating risks before deploying capital.
Why Are Domestic Investors More Confident?
While foreign investors hesitate, domestic investors continue to show confidence in India's long-term growth story. Government spending on infrastructure and manufacturing initiatives have supported market sentiment.
At the same time, retail investors have become a major force in the stock market. Easier access to trading platforms and financial information has encouraged greater participation. Yet this growing enthusiasm contrasts sharply with the caution shown by global institutions, raising questions about how sustainable the current market momentum can be.
Sector Winners and Losers Tell a Different Story
Not all sectors are moving in the same direction. Technology and pharmaceutical companies continue to benefit from strong demand and global opportunities. In contrast, sectors such as manufacturing and real estate face challenges from higher costs and regulatory complexities.
Krishnan also remains cautious about consumer stocks. He highlights concerns around disruptions, pressure on disposable incomes, and elevated market expectations. Similarly, while public-sector capital expenditure remains strong, he does not expect a major acceleration from current levels. Private-sector investment, he notes, is still limited outside a few select areas.
Selectivity Matters More Than Ever
With over three decades of experience in equity markets, Krishnan argues that investors can no longer rely on easy opportunities. He favors banking stocks, which he views as reasonably valued, while advising caution in momentum-driven sectors.
As Business Fortune observes, the future direction of FII inflows will depend less on geopolitics and more on economic fundamentals. Inflation trends, corporate earnings, policy stability, and global growth prospects will likely determine investor confidence. Until those signals improve, foreign investors may continue to remain selective, even as India's long-term growth story stays intact.
FAQs
Why are FIIs not investing heavily despite improved US-India relations?
FIIs remain concerned about inflation, global economic uncertainty, and balance-of-payments risks, which outweigh geopolitical improvements.
What sectors are performing well in India currently?
Technology and pharmaceutical sectors are showing resilience due to strong demand and growth opportunities.
Why is the consumer sector facing caution?
Concerns include weaker purchasing power, potential pressure on household incomes, and high market expectations.
Which sector does P. Krishnan currently favor?
Krishnan favors banking stocks, citing relatively attractive valuations compared to many other sectors.
What could trigger stronger FII inflows in the future?
Lower inflation, improved global growth outlook, stable policies, and stronger corporate earnings could encourage FIIs to increase investments in India.
