Markets focused on trade, not tension, say leading foreign fund managers

Markets focused on trade, not tension, say leading foreign fund managers

India’s Operation Sindoor may have triggered initial jitters among investors, but foreign investors are taking a measured view, treating the episode as a “done for now” type of event with low likelihood of escalation. According to two top global investors Moneycontrol spoke to, the market’s mature response reflects confidence that the situation—while tense—is unlikely to spiral into a full-scale conflict. The fund managers did not want to be quoted for compliance reasons.

“Escalation doesn’t suit anyone. Economically, it's not desirable. India is acting responsibly, doing what’s necessary for national security while keeping the messaging clear,” a fund manager of a leading EM fund owned by a leading American investment bank noted. “There will be some friction at the border for a few weeks, but not to the point where it impacts economic fundamentals.”

Eyes on trade, not tensions

Instead, the market’s focus is shifting to trade dynamics. The India–UK trade agreement is seen as a positive step, but expectations are even higher for the India–US trade pact. “That could be a far more consequential tailwind. With US tariffs on China rising, India is well placed to benefit and align more closely with global supply chains,” another foreign fund manager noted.

Earnings and valuations in balance

On fundamentals, there’s no sign of an FY26 earnings upgrade cycle, but the pace of downgrades has slowed. The base case is mid-cycle earnings growth without a fresh re-rating, implying moderate returns—likely in the mid to high single digits over the next 12 months.

Valuations entering this episode were neither cheap nor stretched. “Geopolitical risk is hard to price, but with a no-escalation base case, the market appears well balanced,” the first fund manager quoted in the story noted.

Macro tailwinds provide cushion

The macro setup is turning supportive. With signs of surplus liquidity returning and expectations building for a 50 bps rate cut, policy and regulatory signals remain pro-growth. “Flows are the outcome, not the cause. Right now, the building blocks for continued foreign interest in India are intact,” another manager said.