Broader market dynamics, investor sentiment towards emerging markets key to determine future flows: Prashant Khemka

Prashant Khemka

As global investors seek alternatives and reevaluate their portfolios, India's favorable geopolitical position, strong domestic market and government initiatives have caught their attention and led to a surge in capital inflows, said Prashant Khemka, founder of White Oak Capital Management, in an exclusive interview with Moneycontrol.

Khemka emphasized that the ongoing trend of growing flows towards India and the prevailing negative sentiment towards China will persist if Indian markets continue to perform well while Chinese markets face challenges. However, predicting the continuation of this trend will require a more nuanced understanding of the complexities of fund flows, he said. “The broader market dynamics and investor sentiment towards emerging markets as a whole will be important to determine the trajectory going forward,” said Khemka.

“The majority of foreign investments in Indian equities, estimated at 70 to 80 percent, come from multi-regional funds and global equity funds. Only 20 to 30 percent of these global investments are dedicated to India. So if global investors display negativity towards equity markets, particularly emerging markets as a whole, it can lead to outflows from India as well.” Khemka said.

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While emerging market outflows have stabilised this year, India is also witnessing increase in India-dedicated inflows in recent months. Khemka said India is indeed growing in prominence as a standalone allocation and investors from various regions, including corporate pension plans, university endowments, private banks, and European pension plans, have shown interest in the country. India's ascent to the fifth-largest stock market economy has further solidified its position as an attractive standalone allocation.

Reflecting on the past decade, Khemka highlighted three key factors contributing to the positive sentiment towards India. Firstly, the aggressive stance of the Trump presidency against China, which included tax and non-tax barriers, incentivized diversification of supply chains away from China, making India an attractive alternative. Secondly, the disruption caused by the COVID-19 pandemic, where China's rigid COVID-zero policies led to supply chain disruptions and losses for companies worldwide. Lastly, the Russia-Ukraine conflict underscored the risks associated with overdependence on China, further enhancing India's appeal with its democratic governance, large domestic market, and supportive government policies for domestic manufacturing.

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