Indian markets nearing end of weak phase; tide turning as global flows, policy tailwinds align: Samir Arora

The tide may be turning for Indian equity markets after months of relative underperformance and muted foreign inflows, said Samir Arora, Founder and Fund Manager at Helios Capital. 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, he told CNBC-TV18.

India’s benchmark Nifty 50 index stands at 25,709.85, up 3.9 percent over the past year, after having more than doubled in the preceding four years. Arora said that the recent phase of relative under-performance has largely run its course and that multiple supportive triggers could restore momentum.

Relative under-performance due for reversal

Arora said that India has lagged most emerging-market peers this calendar year, marking its worst relative performance in three decades -- about 25-27 percent under-performance in ten months. Yet, over five years, India has still outpaced other emerging markets and China. “Beyond a point, such divergence does not last,” he said, suggesting that a catch-up phase is likely.

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Global flows could return

He pointed to signs of global money shifting from the US to the rest of the world. “The world is putting a little bit of its global money into non-US markets. The S&P 500 is up around 13 percent this year, while the world excluding the US is up 23-24 percent,” Arora said.

He explained that if the US, which forms about 65 percent of global indices, trims its allocation even slightly, the remaining 35 percent of markets could see a disproportionate lift in inflows. “In that, we have a valid claim that we should also get money. Instead, India has been losing or people have been redeeming,” he added.

Arora attributed the recent outflows partly to “extra tariffs and a phase of isolation”, but added that diplomatic signals -- such as friendlier trade messages and policy coordination -- indicate the environment is improving.

Policy stimulus yet to play out

On the domestic front, he expects the cumulative impact of policy measures to provide a tailwind. “India has had a lot of interest-rate cuts, GST tweaks, and corporate-tax reductions. All these things, plus or minus a few months, have to impact,” he said.

Normalising return expectations

Arora believes investors must recalibrate their expectations in line with lower fixed-income yields. “Broadly, you’ll get 12-15 percent growth in equity returns, and such a return is fine because your comparison is not with previous years but with fixed-income returns,” he said.

He reminded investors that a decade ago, 10-year government bonds yielded around 9-9.5 percent, making 15 percent equity returns seem reasonable. “Now, if bonds give only 6.5 percent, you should expect 12 percent from equities, which is still attractive,” he noted, adding that returns could improve modestly in subsequent years.

“The Indian public will have to realise that 20-25 percent returns were not normal,” Arora said, arguing that a more sustainable range for the index is 12-15 percent.

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