Foreign investors unwilling to chase most stocks at current valuations, say analysts

New Delhi, Feb 27: Foreign investors are looking to buy Indian stocks on any meaningful correction, but are unwilling to chase most stocks at current valuations, says Pratik Gupta, CEO & Co-Head, Kotak Institutional Equities.

The strong foreign investor interest is not because they’re looking to buy Indian stocks right away, but because many of them had come to learn more about India and specific companies, so that they can be ready to buy as and when there’s any meaningful market correction, he said.

Those who know India well walked away getting reaffirmation of the positive outlook for India and for many companies, and those who were visiting India for the first time or after many years were pleasantly surprised at the energy/enthusiasm of Indian companies in general and of the local investors as well, he added.

Local investors also uncomfortable with high valuation, but appear confident given steady inflows, he said. Most local MF, insurance and PMS funds continue to see steady inflows -- with flows now coming from smaller cities/towns as well so a lot more broad-based. Most local fund managers are not seeing any major signs of worry in terms of a slowdown in inflows -- most retail/HNI investors are sitting on a massive gain in their portfolios over the last 12-18 months and even a 10% market correction is unlikely to shake their faith in Indian equities, Gupta said.

Those managing small-cap funds were understandably more cautious, but a few mentioned there are still some pockets of opportunities even among small caps.

“We expect the market to remain largely range-bound this year. We believe the market is expensive trading at 20.5x March 2025 P/E, which is significantly higher than historical averages and higher than most other emerging markets. This is especially high considering a likely slower earnings CAGR of 11% in FY25 and FY26 (vs 19% in FY24). Hence, we don’t expect meaningful upside to the market in the short term,” Gupta said.