India’s growth story remains intact despite financial outflows, sentiment the main risk: Jim Walker

At a time when global investors are grappling with changing geopolitics, uneven growth in advanced economies and policy uncertainty in the US, India continues to stand out as one of the fastest growing major economies in the world. But paradoxically, foreign portfolio flows into Indian markets have remained under pressure over the past year, raising questions about sentiment, valuations and what lies ahead for 2026.Speaking to ET Now, veteran market strategist Jim Walker of Aletheia Capital expressed his apparent surprise at the continued overseas selling of Indian equities. He called this a serious misjudgment given the country’s long-term fundamentals.

Responding to a question about India’s role in the current geopolitical and macroeconomic order, and whether foreign money could return after sustained outflows, Walker said: “Yes, I mean, I’m surprised that foreign investors are selling their Indian assets and their positions in India. It’s just madness in my view that you would sell the fastest growing, and also fastest, major economy in the world with a very rosy outlook for the future and especially given some of the domestic changes that are happening in India right now in terms of the labor laws, the GST, and hopefully ultimately the actions that will generate massive domestic growth, that’s the kind of country I would have expected investors to rush into.”According to Walker, much of the recent selling is due to profit-taking rather than a deterioration in Indian fundamentals. He argued that investors looking for narratives in advanced economies may soon be forced to reconsider their decisions. “Instead, they took profits in India. Of course they had enough profits and tried to chase a story in the advanced economies that would come to nothing. It might take another few months, if not several quarters, for them to realize that they have just made a huge mistake and that they should have kept their investments in India and invested even more in it.”

Looking ahead to the potential challenges for India heading into 2026, Walker believes the biggest risk may not be macroeconomic, but psychological. “Well, the biggest headwind is probably sentiment. The market hasn’t done a huge amount this year. In recent years, everyone has been complaining about high valuations. Personally, I never really understood that argument because the growth is there and therefore the high valuations will decline over time.”

He also commended both the Reserve Bank of India and the government for their policy stance while underlining where the next phase of reform should focus. “The Reserve Bank has done a great job. There is nothing else they can do that really makes it unnecessary to cut interest rates further in India at this point. The government has done a great job in terms of its budget priorities. It has put a lot more money into capital expenditure in the economy, roads, railways, ports, that is exactly what the government should be doing.”

However, Walker warned that sustained growth will depend on further removing structural bottlenecks. “But the real test now is that if you like an easy business structure in India, this has always been an issue in terms of labor laws and practices. The labor laws have been addressed this year and that is great news. VAT has been rationalized and reduced and that is great news.” He added that reducing red tape around business creation and industrial policy should be the next priority so that India’s domestic economy can flourish. “We should not expect India to adopt the export-boosting growth strategies of the rest of East Asia. This is a domestic story in India.” On external risks, particularly the India-US tariff issue, Walker acknowledged the uncertainty but suggested markets would eventually adjust. “It could very well be that they will decide that the tariffs were illegally imposed by the government… So it could very well be that all these tariffs actually disappear over the next few months.”

Even if tariffs remain, he believes trade will find alternative routes. “Countries will find different trading partners and different ways to influence trade, even as far as the United States.” In this context, he sees emerging alliances and regions such as the BRICS becoming increasingly relevant.

On the commodity side, Walker noted that subdued oil prices are supporting India even as rising gold prices pose challenges to the trade balance. However, he was candid about the limitations of forecasting in this area, noting: “Yes, let me start with oil, because I couldn’t answer the question. I was an oil analyst at the Royal Bank of Scotland in the 1980s and every time I made a prediction about the direction of the oil price in the coming year, it was wrong. Oil is the most difficult commodity to forecast direction.”