Improving consumption cues, strategic overseas bets boost India outlook despite FII sell-off: ASK Private Wealth

Despite continued foreign portfolio investor (FPI) outflows, Indian equity markets appear reasonably well poised, as improving consumption indicators and rising strategic foreign interest—especially in financial services—signal a potential turnaround, said Somnath Mukherjee, chief investment officer at ASK Private Wealth in an interview with NOW.

Mukherjee said the markets have been witnessing a long-standing tension between foreign investors and domestic capital. “Promoters and private equity are exiting in parts, largely financed by Indian retail investors who are confident about India’s growth story,” he said. However, early indications suggest that sentiment may be shifting in favor of inflows.

“The biggest key issue we are seeing is the improvement in high-frequency indicators, especially around consumption. In the last 12-14 months, these indicators were weak, but now we are seeing a broader and more meaningful pickup on the ground,” Mukherjee said. He believes this could attract investors who have been net sellers of Indian equities in recent years.

As strategic investors lead, FPIs can follow

Mukherjee pointed to growth in strategic and private equity interest in Indian banking and financial services in 2025. “Financials have seen a record number of strategic transactions this year – not necessarily in dollar terms, but in deal count and quality of investors,” he said.

He noted that financials account for about a third of India’s market capitalization and largely act as a bellwether for wider foreign inflows. “Typically, financial investors follow strategic, long-term investors. When there is a strong vote of confidence from that group, FPIs tend to follow,” Mukherjee said.

While he refrained from predicting a specific time frame, Mukherjee said even a small shift from net selling to net buying by foreign investors could meaningfully move markets. “Domestic demand from SIPs, EPFO ​​and NPS – already forms the backbone of equity demand. If foreign inflows turn even slightly positive, the upward pressure on prices could increase sharply,” he said.

The budget, AI gap is unlikely to stem the flow

Addressing concerns around the Union Budget and India’s limited exposure to artificial intelligence (AI) plays, Mukherjee downplayed the risks. “Budgets are often discussed far more than they deserve in terms of actual market impact,” he said.

On AI, Mukherjee acknowledged that India’s lack of listed AI-focused companies partly explains its underperformance against global markets this year. However, he argued that this could turn into an advantage. “India can actually be a contra-AI allocation for global investors looking to diversify from markets almost entirely driven by AI capex,” he said.

It also expects India to finally see AI-linked listings, including data center plays, by 2026. “The absence of AI today is unlikely to be a decisive reason for foreigners to avoid India going forward,” Mukherjee added.

Alternatives: A strong case for InvITs, REITs and gold

On asset allocation, Mukherjee emphasized diversification rather than choosing between equities and alternatives. He reiterated a strong positive outlook on InvITs and REITs, citing a mature market, regulatory support and a strong pipeline of new issues. “This segment has evolved into a distinct asset class and appetite should remain strong in 2026,” he said.

Mukherjee also expects gold to remain in a structural, multi-year bullish phase. “Geopolitical uncertainty, efforts to reduce reliance on the US dollar and a structurally low interest rate environment have reduced the opportunity cost of holding gold,” he said.

Mukherjee added, “With no immediate alternative to the dollar, gold is the only readily available hedge. These factors combine to support sustained bullishness in the coming years.”