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India Stocks: Better Risk-Reward Despite Margin Squeeze
8 Jun
Summary
- Cooling valuations improve investor risk-reward despite margin pressures.
- Foreign investors have withdrawn $58 billion from India since 2025.
- Financials, especially large private banks, are favored sectors.
Indian equities present an improved risk-reward ratio for the medium term, despite anticipated margin pressures in the coming quarters. Avinash Satwalekar, president of Franklin Templeton - India, noted that while corporate margins may face a squeeze from escalating input costs due to the West Asia conflict, the recent selling by foreign portfolio investors (FPIs) has tempered India's premium valuations.
FPIs have withdrawn $58 billion from India's equity cash segment since 2025, driven partly by earnings growth concerns and the appeal of AI themes elsewhere. However, Satwalekar believes India's structural growth story remains intact. He highlights that despite global headwinds, India continues to be the fastest-growing large economy, with free trade agreements and domestic manufacturing initiatives poised to boost GDP growth.
Franklin Templeton favors sectors with strong earnings visibility and resilient balance sheets, particularly large private banks expected to benefit from improving credit growth. While export-oriented sectors like pharma may gain from currency depreciation, manufacturing segments could face margin compression. The market may see continued volatility until geopolitical uncertainties subside.
