As investors move away from China and valuations improve, India could see FIIs returns: Bay Capital

"Over the past year, many FIIs expressed concerns about high valuations in India. However, those conversations are now turning more constructive, as valuations have become more reasonable," Keyur Majmudar Managing Partner , Bay Capital Investments Advisors said.

India is set to capture more capital, driven by its stable economic environment, growing digital economy, and entrepreneurial ecosystem as global investors move away from China due to geopolitical risks, according to India-focused investment management firm Bay Capital. The management was speaking as a part of a media roundtable to discuss India’s market outlook.

While FIIs have been net sellers, pulling out approximately Rs 1–1.2 lakh crore since January, improving market valuations could encourage fresh inflows in the coming months. They noted that some hedge funds have exited due to short-term strategies, while others have shifted allocations to China and other emerging markets. This portfolio realignment has contributed to the selling pressure in Indian equities.

But going ahead, things could improve, they believe. "Over the past year, many FIIs expressed concerns about high valuations in India. However, those conversations are now turning more constructive, as valuations have become more reasonable," Keyur Majmudar Managing Partner , Bay Capital Investments Advisors said.

Despite the fluctuations in FII flows, Bay Capital believes domestic savings will play a far greater role in shaping India’s equity markets over the next decade. In economies like the US and Japan, household savings have historically formed the backbone of equity ownership. A similar trend is emerging in India, where domestic institutions—mutual funds, insurance firms, and direct retail investors—are increasing their market share.

Going ahead, they see investment opportunities in areas such as consumption, digitization, financialization, outsourcing (IT).

“Digitalization is a particularly powerful trend. Currently, around 35–38 digital-first consumer internet businesses are listed, with a cumulative market capitalization of approximately Rs 10 lakh crores. Looking ahead, we believe that in the next decade, this number could grow to 100, and the total market cap could be significantly larger—potentially 10 times its current value. Will the future winners emerge from today’s businesses? Yes. Will there be new businesses that get listed? Absolutely. We are uniquely positioned to analyze and capitalize on these developments,” Majmudar added.

On outsourcing, they noted that the landscape is shifting from being purely cost-driven to one that is defined by deep science and domain expertise. “Many IT services have become commoditized, where price is the main differentiator. However, businesses that leverage specialized knowledge—such as Contract Research Organizations (CROs)—are now able to set themselves apart, not just through labor arbitrage but through unique, high-value expertise,” he said.

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