According to Cameron Brandt, Director of Research at EPFR Global, emerging-market equity funds have seen more consistent inflows over the past two months, though investor interest remains focused largely on fixed income. As reported by CNBC TV18, Brandt noted there's certainly broad outperformance in emerging markets equity, with more consistent flows into diversified global emerging markets equity funds over the last two months. However, the current climate remains challenging for India, with foreign investors remaining cautious as higher oil prices and the limited impact of the artificial intelligence (AI) theme weigh on the investment case.
For India, foreign investors remain cautious as higher oil prices and the limited impact of the artificial intelligence (AI) theme weigh on the investment case. As per EPFR Global's analysis reported by CNBC TV18, Brandt expects foreign investors to remain 'leery' of India until oil prices fall meaningfully towards around $80 a barrel. The AI story has somewhat bypassed India, while energy costs have been much higher than ideal for the country. Brandt noted that every time foreign interest starts to thaw and nudge back towards committing money into dedicated India funds, something macroeconomic tends to happen, with the latest hit coming from the resurgence in oil prices. Despite these challenges, foreign investors net bought Indian equities for three consecutive months, with August inflows close to ₹300 billion, according to Kotak Institutional Equities.
Brent crude is trading around $95 per barrel, driven by genuine supply concerns rather than just geopolitical risk premium, as reported by Centrum Broking. Disruptions to shipping through the Strait of Hormuz are affecting physical movement of crude, preventing barrels from reaching buyers on time. A risk premium fades once tensions cool, but a blocked route does not, explaining why prices have held at these levels. The current rise is supported by broader commodity strength, with coking coal near 52-week highs and aluminium and copper at similar levels, indicating supply problems across commodities rather than speculation in oil. For India, the asymmetry is unkind as relief arrives at once, but the cost of long disruptions builds through the current account.
Despite a flat index and global macroeconomic headwinds like high US yields and crude prices, India's stock market environment remains structurally healthy due to strong earnings growth and reasonable valuations, says Kotak Institutional Equities. The Nifty has not made a new high since early January and is roughly 10% below that level, but the June quarter delivered the strongest earnings growth in some time with index profit growth of about 18%. The forward multiple has compressed to around 17 times earnings, and estimate upgrades have outnumbered downgrades. When India's 10-year sovereign bond yield rises to 7.3-7.5%, the risk-reward ratio for Indian equities would begin to deteriorate, according to Centrum Broking.
The RBI's October and December policy meetings, Rabi sowing from October onwards, and September quarter earnings could be key triggers in the coming months, as per Centrum Broking. Growth has been much stronger than the RBI expected, while inflation is moving higher, making hawkish signals potentially challenging for smaller market segments. The durability of foreign buying remains to be tested against higher US yields and crude near $96 per barrel. Kotak Institutional Equities highlights the investment cycle theme, with fixed investment growing close to 12% last quarter, and metals showing domestic steel prices at four-year highs with consistent foreign buying. The current environment shows emerging market flows returning but with selective interest, as investors remain focused on fixed income dynamics and fiscal concerns that have produced marked steepening of yield curves.
