India in the Global Context: Valuations, Flows and Market Positioning

India’s Relative Valuations Moderate After Peak Premium

India’s positioning within the global equity landscape is undergoing a gradual shift, as elevated valuation premiums begin to normalise and investor flows remain influenced by external uncertainties.

India’s price-to-earnings premium, which peaked at over 100 per cent in April 2023, has moderated to around 34 per cent as of early April, indicating a meaningful cooling in relative valuations, according to HDFC Securities Big Review report which was released on Wednesday.

This adjustment reflects both market consolidation and a broader recalibration in global risk appetite.’

FPI Outlook Remains Clouded Amid External Pressures

Foreign portfolio investor sentiment continues to remain uncertain, shaped by a mix of global and domestic variables.

Key headwinds include:

• Risk-off sentiment across emerging markets and equities
• Currency pressures
• Elevated oil prices, with implications for inflation and balance of payments
• Ongoing earnings downgrades

At the same time, certain supportive factors are emerging.

Valuations are now considered more reasonable, marking only the fifth instance since 2008 when relative pricing has approached comparable levels. Additionally, India’s macroeconomic stability continues to provide relative strength within emerging markets.

Overall, sentiment appears contingent on improved visibility across global conditions.

Mutual Fund Liquidity Provides Structural Support

Domestic institutional flows are playing an increasingly important role in shaping market dynamics.

Cash holdings with Indian mutual funds currently stand at over ₹2 lakh crore, representing approximately 5.5 per cent of assets under management (AUM). This elevated liquidity level provides a buffer against external volatility.

From March 2026 onwards, domestic institutional investors have begun deploying capital more actively, partially offsetting foreign outflows.

Deployment Trends Reflect Sectoral Preferences

Initial allocation trends suggest a preference for domestic and structurally resilient themes.

Early-stage investments have been directed towards:

Inflation-protected and domestic-facing sectors

Structural growth segments

Valuation comfort plays

Key Sectors Attracting Flows Include:

EMS, Healthcare, Power, Staples, Industrials and Banks

Simultaneously, there are early signs of incremental buying in beaten-down segments. Select exposure is being added in:
IT, Energy, Real Estate and Textiles, particularly in anticipation of a post-disruption recovery phase.

Liquidity and Valuation Reset Shape Near-Term Outlook

The combination of moderating valuation premiums and strong domestic liquidity is reshaping market structure.

While foreign investor flows remain uncertain, domestic institutions appear to be stepping in with measured deployment, providing stability to the broader market.

With valuations no longer at extreme levels and liquidity conditions supportive, the market appears to be transitioning towards a more balanced phase, where both global cues and domestic flows will determine the next directional move.

HDFC Securities Ltd MD & CEO, Dhiraj Relli, Chief Research Officer – Equities, Varun Lohchab, Head of Institutional Equities, Unmesh Sharma and Head of Prime Research, Devarsh Vakil shared the report and its findings with the media in an event on Wednesday.