India Markets Poised: Consumption Pickup Trumps FPI Outflows

Indian equity markets are showing promising signs of resilience, even as foreign portfolio investors continue to divest. An uptick in consumption indicators and growing strategic foreign interest, especially in the financial services sector, suggest a potential market reversal. Retail investors are actively participating, demonstrating confidence in India's growth narrative, while promoters and private equity firms are selectively exiting.

The financial services sector, representing a significant portion of India's market capitalization, is witnessing a notable increase in strategic transactions. This heightened interest from quality investors in financials often acts as a precursor to broader foreign institutional investment, hinting at a potential return of FPI inflows. Even a modest shift from net selling to net buying by foreign investors could significantly impact market prices, especially with strong domestic demand from sources like SIPs already providing a solid base.

Furthermore, India's limited exposure to AI plays is viewed not as a risk but as a potential advantage, offering a 'contra-AI' allocation for global investors seeking diversification. Predictions indicate AI-linked listings, including data centers, could emerge by 2026. The asset allocation advice emphasizes diversification across equities, InvITs, REITs, and gold, all of which are expected to perform well due to a maturing market, regulatory support, and geopolitical factors.