Global Funds Return to India as Earnings Outlook Improves

Why It Matters

The influx revives capital flows to one of the world’s largest emerging markets, supporting price appreciation and signaling confidence in India’s earnings trajectory. It also highlights how geopolitical agreements can quickly reshape investment allocations.

Key Takeaways

• Global funds added $2.1 bn in February.
• US‑India trade deal reduces market uncertainty.
• Earnings growth projected 15‑16% by FY27.
• MSCI India trades 4% below five‑year PE average.
• Valuations cheap; potential inflow catalyst.

Pulse Analysis

1 billion of shares in February – the strongest monthly inflow since June. 2 trillion market. Combined with stabilising corporate earnings, the deal improves the risk‑adjusted return profile for emerging‑market investors, prompting a tactical shift from AI‑centric hubs toward India’s growth trajectory. Investors also cite India's resilient consumption base and improving current‑account dynamics as supportive factors. Corporate results are reinforcing the inflow narrative.

FTSE India constituents posted a 10 % sales jump and a 13 % net‑income rise in the December quarter, while consensus forecasts for over 250 firms anticipate earnings expanding 16 % by fiscal 2027. Valuations remain attractive, with MSCI India trading about 4 % below its five‑year average price‑to‑earnings multiple, offering a discount relative to regional peers that surged 25 % in the same period. Financials, metals and capital‑goods have emerged as top picks, reflecting a broader earnings‑driven rotation. The earnings momentum is further bolstered by a rebound in private capex and export outlook.

Despite the optimism, the rally is not without headwinds. A sharp sell‑off in Indian software firms erased more than $50 billion in market value this month, underscoring concerns that AI disruption could dent profitability. Moreover, the inflows are partly liquidity‑driven; a tightening of global monetary conditions could reverse the trend quickly. Nonetheless, the combination of reasonable valuations, solid earnings revisions and policy continuity keeps India on the radar of global asset managers seeking diversified exposure to emerging‑market growth. If the US‑India trade framework holds, it could serve as a template for future bilateral agreements, enhancing long‑term confidence.