Foreign investor interest in Indian equities is slowly returning as strong earnings and improving sector fundamentals begin to draw attention back to the market, according to UBS. Diviya Nagarajan, Head-India Research at UBS, said foreign institutional investors are showing selective interest in value-driven companies that can deliver steady earnings growth over the long term. As reported by CNBC TV18, she noted that it is still early days, though sentiment has improved compared to the past few months. The brokerage is seeing pockets of interest emerge, especially from an FII perspective, looking at value bottom-up stories that can be earnings compounders over a long period of time.
Financials are emerging as one of the key sectors attracting investor attention, according to UBS. Improving credit growth, healthier balance sheets and a cleaner banking system after years of bad loan issues have made banks and non-banking financial companies more appealing. The brokerage is also seeing interest in select midcap companies with long-term earnings compounding potential. Energy security and renewable energy are also gaining traction as investment themes, particularly amid geopolitical uncertainty and volatile oil prices. UBS expects defence to remain a structural growth area as governments globally continue increasing spending in an increasingly uncertain world.
Even though India is not yet a major beneficiary of the global AI boom, UBS does not see that as a roadblock for market gains. Sunil Tirumalai, Global EM Strategist at UBS, said if you have decent earnings growth and if the domestic money is supportive, and if the earnings start recovering, there's no doubt why India can't have a positive return year. However, the firm believes India could eventually benefit from AI adoption across industries, especially if companies improve productivity and lower costs over time. UBS remains cautious on Indian IT in the near term, but believes smaller firms may be better placed to adapt to change than large-cap IT players.
Consumption, especially among large consumer staples companies, has also surprised positively, with demand trends improving faster than expected. According to UBS, consumption has been a bright spot in the market, with companies showing better-than-anticipated performance. The firm acknowledges that India has underperformed some Asian peers because markets such as Taiwan and South Korea have benefited from strong AI-linked demand, but believes India could eventually catch up through AI adoption across industries.
