Is current market valuation attractive for investors?

Recent market movements have led to a meaningful fall across segments, helping valuations move closer to long-term averages. The Nifty is trading at about 21 times trailing earnings, which is marginally below its 10-year average, indicating a moderation from earlier elevated levels. Importantly, the fall has been more pronounced in broader markets, with mid- and small-caps correcting 15-22 per cent from peak levels, which has helped cool off excesses. While some segments may still appear optically expensive, overall valuations are now better aligned with earnings growth expectations and India’s structural growth trajectory. This phase has combined a price correction with valuation normalisation, bringing valuations closer to more sustainable levels. Historically, such periods have often created attractive conditions for long-term investors to build equity exposure gradually through disciplined, systematic investment approaches.

Is the valuation right enough to attract FPI inflows?

FPIs have sold over $20 billion of Indian equities in the past 15 months amid a tough external backdrop with tariff uncertainty, geopolitical tensions, slower earnings growth and rupee weakness, alongside a rotation towards other emerging markets. That said, positioning has turned more supportive. India’s weight in global emerging markets (EM) funds versus its MSCI EM weight is near the lower end of the past 25 years. India’s valuations have corrected meaningfully from the September 2024 peak and India’s valuation premium to EM peers has also fallen to below-average levels after prolonged underperformance versus the EM index. However, valuations alone will not drive flows. With oil prices elevated, forex depreciation has weighed on returns and the rupee remains exposed if energy prices stay high. The pace of FPI return will hinge on global liquidity, interest-rate cycle, currency stability and India’s relative appeal versus other EMs. If earnings growth improves and the rupee remains resilient, foreign inflows should gradually pick up.

Do you think the prolonged West Asia war will impact inflows into MF as SIP investments in last two years has already turned negative?

Geopolitical developments can lead to short-term volatility, but history shows that markets tend to stabilise and recover as fundamentals reassert themselves. Domestic flows, particularly SIPs, have demonstrated resilience across cycles and the broader trend of financialisation of savings remains intact. Periods of volatility often encourage disciplined investing through rupee cost averaging rather than disrupt it. Hence, while there may be intermittent sentiment-driven fluctuations, long-term flows are unlikely to be structurally impacted.

With entry of new players in MF industry, do you expect competition to intensify?

Competition will certainly intensify with new entrants, but this should be seen as a positive for the industry. It will drive innovation, improve investor awareness and expand market penetration. Over time, success will depend less on product proliferation and more on consistency of performance, robust risk management and the ability to guide investors through volatile cycles.

Do you expect consolidation in the industry with SEBI tightening TER norms?

The tightening of the TER norms enhances the value proposition of the mutual fund industry for end investors by reinforcing transparency and cost discipline, which strengthens trust and gives them comfort to invest their hard-earned money into the products. While consolidation is always a possibility, it is more likely to be driven by business considerations rather than TER changes. In fact, given the long runway of opportunity, we could see more asset management companies entering India in the coming years so we should see a significant growth of new players entering this industry.

Do you think the rise in crude oil prices to impact demand and corporate earnings in the coming quarters?

India has high dependence on imported crude (88 per cent of crude demand), with a meaningful share sourced from West Asia, making it vulnerable to any sustained rise in oil and gas prices. A prolonged disruption would raise the import bill, add to inflationary pressures, and potentially widen the current account deficit. These factors can also weigh on the rupee. From an earnings perspective, the first impact is typically on margins in oil-sensitive sectors, as passing through these costs is often partial and delayed. Companies may attempt price hikes to protect profitability, but if higher prices persist, the burden can start to show up in consumption demand, especially discretionary categories, either through downtrading or deferred purchases. For upstream energy companies, higher crude oil prices should benefit earnings. Overall, we expect a modest impact on corporate earnings over the next couple of quarters, but a material impact is more likely if supply disruptions persist and elevated prices limit the ability to pass costs without hurting demand.

Will the increase in inflation hit demand across sectors?

A sustained rise in inflation can have some impact on demand, particularly in discretionary segments, as it affects household purchasing power and input costs for businesses. However, the extent of the impact will depend on the duration and magnitude of the inflationary pressures. At this stage, while there are pockets of concern — especially from commodity prices — India’s overall demand environment remains relatively resilient, supported by improving income levels, government spending and a gradual recovery in private capex. Additionally, policy measures and supply-side adjustments have historically helped cushion the impact of inflation to some extent. Unless inflation remains elevated for a prolonged period, we believe the impact on demand is likely to be moderate rather than structural.