ETMarkets Smart Talk| FII selling shifts flows to Korea, Taiwan, Japan; DIIs remain net buyers: Dr. Poonam Tandon

Foreign institutional investors (FIIs) have turned cautious on Indian equities, with recent outflows finding their way into markets like Korea, Taiwan and Japan.

Yet, domestic institutional investors (DIIs) have stepped in as steady buyers, supported by strong retail and SIP inflows.

In an exclusive conversation with ETMarkets Smart Talk, Dr. Poonam Tandon, CIO at IndiaFirst Life Insurance, decodes the implications of FII selling, the impact of India’s sovereign rating upgrade, and why consumption-driven sectors could emerge as key beneficiaries in the months ahead. Edited Excerpts –

A) S&P Ratings upgraded India’s credit rating to BBB, from BBB-, after nearly 18 years. With a stable outlook, S&P cites economic resilience, low inflation and fiscal consolidation. The rating agency sees US tariffs to be manageable for India.

This upgrade was expected after the agency placed a positive outlook in May-2024, highlighting its focus on fiscal consolidation and strong growth – but the upgrade came a year earlier than expected.

This is sentimentally a positive and should help attract FIIs back to India – as the growth rate is the highest in the world and has a significant domestic market which is consumption based (the Government of India has also given a number of indirect and direct tax cuts to the citizens this fiscal).

The macro-economic factors are extremely positive, which has been endorsed by S&P as well. Therefore, there will be a positive allocation in the FIIs flows to India.

Q) Could improved ratings prompt a strategic reallocation from debt to equity among global asset managers, and which sectors might absorb this shift?
A) The debt investors and equity investors could be different, especially the ones who invest in the JP Morgan Fixed income index- therefore there is little chance of the same investor changing the asset class.

However, since the Indian borrowers will get a better pricing, the cost of borrowing will be lower and therefore the margins will be better – better ROE.

Therefore, it will attract investors in the equity asset class. The shift will mainly be beneficial for NBFCs and Banks.

All large corporations who require funding can look to diversify their borrowings at lower costs – this will improve bottom line for them as well.

Q) What is your take on the June quarter results for India Inc.? Are managements more confident about the future amid tariff threats?
A) Overall performance was strong with approx. 50% of the companies delivering better than expected PAT growth. The Beat to Miss ratio remained strong with 10 companies missing street expectations.

Adjusted PAT registered 9.5% y-o-y growth, exceeding street expectations of 4-6% increase. Currently, Nifty 50 is trading at 20.0x FY26 and 18.1x FY-2027 consensus estimates.

Most of the companies are inward focussed and those who are export oriented, have a diversified customer base. The Government is also working out some packages for the corporates who may be impacted higher due to the US Tariff structure.

The PM has also announced GST rationalisation on August 15th, which will see the GST reduced to 2 slabs of 5% and 18% thereby reducing the GST by 7%+ and spurring demand. GST reduction works by impacting prices and volumes making full pass-through critical.

Q) Where is the smart money moving? We are seeing selling by FIIs and DII/institutional and retail investors doing much of the heavy lifting.
A) FII’s have been on the selling side in the last 1.5 months. This has been on the back of concerns arising out of mainly the tariff related uncertainty.

FPI flows seem to have rotated into countries such as S. Korea, Taiwan and even Japan. DII’s, however, continue to be net buyers on the back of continuing strong SIP inflows.

Q) How can one earn or get financial freedom at the age of 50 by investing in equity or equity related instruments?
A) Equity and equity related instruments will give financial freedom at an early age. If one sees, equity on a 10-year basis has given around 12% (XIRR). The Fixed income return would be around 8.5% but it is tax inefficient.

Therefore, the return will still be lower. One can look at investing in Mutual Funds, NPS or ULIPs. Some portion needs to be kept in fixed income for emergency funding though. Once the corpus increases, one can buy an annuity on retirement- to get a monthly stream of income.

Q) Any implication from the US-Russia summit which investors should be keep an eye on?
A) US-Russia summit ended without any new sanctions on Russia or buyers of its crude. However, uncertainty persists over whether the additional 25% tariffs on India will come into effect from August 27 or not.

Now, the focus shifts to President Trump’s talks with Ukrainian President Zelensky and other European leaders.

Q) US market hit fresh highs, Bitcoin too hit fresh highs – where are we stuck?
A) US markets have indeed hit all-time highs along with few other markets. Indian markets, although well placed from a macro perspective, still await triggers viz., revival of demand especially urban demand.

Demand revival will help provide a thrust to private corporate CAPEX and in turn corporate earnings. This should help catalyse FPI investments back into the equity markets.

Q) Any sectors which investors should keep on their radar?
A) Government has focused on reviving consumption through measures (such as – providing tax rebate and the proposed GST rate rationalisation). Even the RBI has undertaken aggressive monetary easing.

This should eventually help revive domestic consumption. Thus, consumption facing sectors stand to benefit. This includes select FMCG, Banks, Autos, Travel & Tourism, etc.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)