India's GDP growth and earnings, along with future Fed rate cuts key to FIIs' return, says Julius Baer's Mark Matthews

Mark Matthews attributed the recent exodus by FIIs to last year’s weaker economic growth and corporate earnings.

The US Federal Reserve's 'dot plot' has pencilled in only one cut for 2026, but several experts are more optimistic on the rate trajectory, including Mark Matthews, Head of Research – Asia at Julius Baer, who said the central bank's projections “often shift”, and the policymaker has already softened its once-rigid two percent inflation target.

For India, the macro backdrop is turning distinctly favourable, according to Matthews, who said the pro-growth measures - RBI rate cuts, GST tweaks, income tax relief, easier reserve requirements, S&P upgrade - along with the expectation of double-digit corporate earnings next year can set the stage for foreign institutional investors (FIIs) to return after more than $15 billion in outflows this year.

Stage set for FIIs to return

Matthews attributed the recent exodus by foreign investors to last year’s weaker growth and earnings. “...with policy support and improving fundamentals, we should see stronger earnings ahead,” he said, adding that a resolution of US-India trade frictions would bolster sentiment.

Sectors to Watch

Banks, consumer plays and infrastructure remain Matthews’ preferred bets, even as he sees a contrarian opportunity in IT. “The sector has lagged banks by about 30 percent this year. Historically, they move opposite each other, so IT stands out if US-India trade disagreements ease.”

India Trailing in Global AI Race

Matthews cautioned that the "only thing India lacks is a large-scale AI story, unlike China or the US where artificial intelligence plays are driving investor excitement. Even so, said the ingredients are in place for a renewed foreign interest, with inflows likely to build steadily rather than overnight.

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