Foreign portfolio investors are reducing their exposure to Indian equities. Raamdeo Agrawal of Motilal Oswal Financial Services explained that high domestic valuations, the absence of a strong artificial intelligence growth story, and geopolitical tensions are the main reasons behind this trend. Rising oil prices due to Middle East conflicts are also putting pressure on India’s foreign exchange reserves, making investors cautious.
Despite these challenges, Agrawal highlighted that India’s corporate sector is performing well. The auto industry has shown strong growth, with July volumes rising between 20% and 50% for leading companies. Manufacturing activity remains robust, and credit growth is steady at around 18%, reflecting healthy domestic demand. Goods and Services Tax collections also increased by 15.5% in June, even after rate reductions, showing resilience in consumption.
Market performance has been mixed. The Nifty 50 gained 2.2% in July, marking growth in three of the last four months, though it is still down about 7% for the year. Midcap and smallcap indices also posted gains, with smallcaps outperforming at 2.5%. Agrawal believes India is economically strong but warns that external risks like oil prices and geopolitical conflicts could affect stability. He remains confident that domestic growth drivers will support long term strength even as FPIs move out.