India share market rally may continue; FIIs set to return, macro cues favourable: Quant MF CIO Sandeep Tandon

Foreign institutional investors (FIIs) may soon return to Indian equities as their underweight positions near exhaustion, potentially extending the ongoing share market rally, according to Sandeep Tandon, chief investment officer at Quant Mutual Fund. The upward momentum in the months ahead may also be supported by improving macro conditions and peaking currency pressures, Tandon said in an interview with CNBC-TV18.

“The FII underweight positions have reached their limits, and we could see them returning soon,” Tandon said, adding that India’s relative underperformance versus both emerging and developed markets has largely run its course.

Benchmark NSE Nifty 50 index has jumped more than 6 percent so far in October, after being nearly flat in the preceding one year. Bank Nifty has gained over 7 percent month-to-date.

• Also read | Indian markets nearing end of weak phase; tide turning as global flows, policy tailwinds align: Samir Arora of Helios Capital says that India’s underlying set-up now looks stronger than the prevailing sentiment, and conditions are likely to improve as global capital shifts and domestic policy support gathers momentum.

India’s stock market rally has more legs

The sharp up-move in recent weeks has emerged from a phase of extreme pessimism -- concerns over the rupee, commodities, global trade, and heavy FII selling. “People were extremely bearish… it’s a perfect background for an inflection point,” he said.

Tandon believes the current rally “has more legs to move up,” even after October’s strong performance. While some profit-taking could occur in select sectors such as banking, he said the overall setup remains favourable for equities. “When data points are convincingly bullish but conviction is missing, that is when you must be fully invested,” he remarked.

Quant Mutual Fund remains “largely 100 percent invested in the market, except in small caps,” he added.

Rupee stabilisation, macro support add strength

Beyond FII positioning, Tandon pointed to improving macro fundamentals as a key support for the market. He said the rupee appears to have peaked in its depreciation cycle and could stabilise or even appreciate gradually. “The pace of depreciation has peaked out,” he said, suggesting that stability in the currency could further strengthen investor confidence.

Supportive domestic backdrop

Tandon also cited the government’s policy measures -- ranging from signals of rate easing to GST and income-tax benefits announced in the Budget -- as tailwinds for the market. The full benefits of these initiatives, he added, would play out with a lag but are already contributing to a stronger investment climate.

“After three years, we are finally seeing better sentiment in seasonal markets and more visible activity,” he said, describing the current environment as “a very constructive background for Indian equities.” Quant Mutual Fund is positive on renewable and green-energy sectors, which Tandon identified as key long-term growth themes.