Foreign institutional investor (FII) inflows are likely to play a decisive role in the next stage of market recovery, according to Saibal Ghosh.
In an interaction with Kshitij Anand of ETMarkets, Ghosh highlighted that even though FY26 was marked by volatility due to geopolitical tensions and global uncertainties, India’s long-term structural story remains intact.
He added that a moderation in global themes such as the AI-led rally, along with improved earnings visibility and easing of macroeconomic headwinds, could bring back foreign investors in a meaningful way, paving the way for further bullish momentum in Indian stocks. Edited excerpts –
Q) FY26 returns turned negative due to geopolitical concerns around West Asia. How do you summarize the exercise?
A) It’s been a tough year for the market. Just as synchronized fiscal and monetary policies were beginning to revive growth, a geopolitical conflict disrupted this dynamic.
Even though our foreign exchange reserves remain one of our main assets, we are facing a capital account deficit; a first since the global financial crisis (GFC). This problem is today further exacerbated by the energy crisis and the vulnerability of the currency.
However, it is important not to lose sight of the bigger picture. If we look beyond the immediate noise, India’s record is excellent.
We have recorded returns of over 15% in the last 10 years, proving that even though the short term is bumpy, the long term picture for Indian stocks remains one of the best in the world.
Q) As we head into FY27, what are the key triggers investors should keep in mind that could lead to a market reversal or return of bullish sentiment?
A) I think the environment will improve quickly once the geopolitical situation stabilizes and we have clearer visibility on earnings growth. That said, the real “driver” of a sustainable recovery will be the massive return of FIIs.
India remains one of the best countries for long-term growth, but we have lost the AI theme. Our market has recently been overshadowed by the global AI hype.
Now that the AI and connected AI game seems a bit overblown, a valuation correction could be exactly what brings foreign investors back to our market.
Q) Which sectors should be on investors’ radar for FY27?
A) Our main theme remains focused on inner growth. However, at this stage it is prudent to incorporate a direct indicator of inflation within the portfolio.
We simply cannot afford to ignore the sectors that are the main source of the high inflationary cycle that is expected to accelerate in the coming days.
Within the national framework, we maintain a strong preference for banking and financial services sectors as our main growth factor.
Q) How should we approach gold and silver in the new financial year?
A) Although gold is not my primary area of expertise, its role as a hedge during periods of heightened uncertainty is undeniable.
However, current valuations are exceptionally tight, complicating tactical entry and suggesting that traditional empirical caution may not apply in the near term.
Longer term, I believe a structural allocation to gold is warranted as US fiscal dominance faces headwinds and gold increasingly replaces US Treasuries as the world’s primary hedge against risk.
Q) Do you think some sectors have already undergone a correction and are now available at attractive valuations?
A) While I believe the banking and real estate sectors have reached a point where measured positions are warranted, the market as a whole remains expensive.
When we subject our investment universe to final growth rate modeling, we find very few opportunities valued under reasonable assumptions.
The fundamental wisdom of these models suggests that current valuations are pricing in a level of growth that is difficult to justify, even though India remains one of the best countries in the world in terms of structural growth.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
