By Improving Consumption Signals, Strategic Foreign Bets Improve India’s Outlook Despite FII Selling: ASK Private Wealth

Indian equity markets appear reasonably well prepared despite continued foreign portfolio investor (FPI) outflows as improving consumption indicators and rising strategic foreign interest – especially in financial services – signal a potential turning point, says Somnath Mukherjee, Chief Investment Officer of ASK Private Wealth, in an interview with ET Now.Mukherjee said the markets have witnessed a prolonged battle between foreign investors and domestic capital. “Promoters and private equity have partially retreated, largely funded by Indian retail investors who remain confident in the Indian growth story,” he said. However, early signs indicate that sentiment may shift in favor of inflows.

“The biggest pivot we are looking at is the improvement in high-frequency indicators, especially around consumption. Over the last 12 to 14 months, these indicators have been weak, but we are now seeing a broader and more meaningful upturn on the ground,” Mukherjee said. This, he said, could attract investors who have been net sellers of Indian equities in recent years.

Strategic investors lead, FPIs can follow

Mukherjee pointed to a rise in strategic and private equity stakes in Indian banking and financial services by 2025 as a key signal. “This year we have seen a record number of strategic transactions in the financial sector – not necessarily in dollar terms, but in number of deals and quality of investors,” he said.

He noted that financial services account for almost a third of India’s market capitalization and often serve as a bellwether for broader foreign flows. “Normally, financial investors follow long-term strategic investors. When there is a strong vote of confidence from that cohort, FPIs tend to follow,” Mukherjee said.

While refraining from predicting the exact timing, Mukherjee said even a marginal shift from net sales to net purchases by foreign investors could meaningfully move the markets. “Domestic demand – from SIPs, EPFO ​​and NPS – is already the backbone of equity demand. If foreign inflows turn even remotely positive, upward pressure on prices could increase quickly,” he said.

Budget and AI gap are unlikely to deter flows

Addressing concerns around the Union Budget and India’s limited exposure to artificial intelligence (AI), Mukherjee downplayed the risks. “Budgets are often talked about much more than they deserve in terms of actual market impact,” he said. On AI, Mukherjee acknowledged that India’s lack of publicly traded AI-focused companies partly explains its underperformance against global markets this year. However, he argued that this could become an advantage. “India could in fact be a counter-AI allocation for global investors looking to diversify away from markets driven almost entirely by AI investments,” he said.He also expects that India will eventually see AI-connected listings, including data center operations, by 2026. “It is unlikely that the absence of AI today will be a decisive reason for foreigners to avoid India in the future,” Mukherjee added.

Alternatives: Strong case for InvITs, REITs and gold

On asset allocation, Mukherjee emphasized on diversification rather than choosing between equities and alternatives. He reiterated a strongly positive view on InvITs and REITs, citing a maturing market, regulatory support and a robust pipeline of new issuance. “This segment has emerged as an asset class in its own right, and interest should remain strong into 2026,” he said.

Mukherjee also expects gold to remain in a structural, multi-year bull phase. “Geopolitical uncertainty, efforts to reduce dependence on the US dollar and a structurally lower interest rate environment have all reduced the opportunity cost of holding gold,” he said.

“With no immediate alternative to the dollar, gold remains the only readily available hedge. These factors together support a sustained rally in the coming years,” Mukherjee added.