Pranab Uniyal Sees Rising Foreign Inflows and India's Risk Appetite in 2026

Market experts believe that India’s equity market might be at an inflection point for a big turnaround in 2026. Various signals during the last few months have indicated that foreign investment flows and risk appetite by domestic investors may revive on supportive economic policy, recovering corporate earnings, and attractive valuations. Pranab Uniyal, Head of HDFC Tru, shared an elaborate outlook on the investment landscape, sector preferences, and the factors that are likely to lure back foreign institutional investors to Indian equities.

Uniyal feels that India’s investment landscape may see a complete turnaround in the coming year. He feels the recent financial data indicates a reversal of FII flows and risk appetite of investors, led by four key drivers.

Corporate Earnings Stabilize, Says Pranab Uniyal

Pranab Uniyal said the stretched EPS downgrade cycle seems to have stabilized in the last three months. He highlighted that Q2 FY26 results tracked better than expected and have led to selective earnings upgrades. “The stabilization of corporate earnings lays the foundation for a more constructive investment environment,” said Uniyal. To him, this was an important development as far as attracting foreign capital back into the market was concerned.

FII Flows Set to Improve in 2026

Uniyal said recent data suggests the start of an FII flow reversal. He feels foreign risk appetite and investment flows into India are likely to see a significant improvement next year. He said this would be led by four key drivers-growth-supportive policies, corporate earnings recovery, historic underperformance catch-up, and normalizing valuations.

He explained, the growth-supportive policies announced by the government and RBI, such as rate cuts and improved liquidity, are likely to accelerate economic growth. Along with this, GST reductions and a slower fiscal consolidation pace form a strong foundation for equity investment.

The Sector Preferences of Pranab Uniyal

Pranab Uniyal shared his sector preferences, saying large banks, auto, insurance, real estate, capital goods, and chemicals are some of the attractive investment sectors for him. He is underweight on mid-cap IT and upstream oil and gas sectors. He is cautious on the microfinance segment, too, stating credit risks would need to be evaluated carefully.

RBI Rate Cuts and Inflation Outlook

Responding to a question on the possibility of a repo rate cut in the next December policy meet, Uniyal said that the RBI has space for another 25 bps rate cut. Given the comfortable trajectory of inflation, he said that even after one more rate cut, the real policy rate will remain in the range of 1.5-1.8 per cent, which is within the guided real neutral rate of the RBI at 1.4-1.9 per cent.

Impact of GST Cuts on Consumption

Commenting on the question of whether GST-triggered consumption would continue into Q4 FY26, Pranab Uniyal pointed out that GST cuts had reduced prices for high-ticket consumer discretionary items, which, in turn, improved demand. He said that December and January are usually good months with strong discretionary spending on account of holidays and weddings, which would also sustain this trend during the season due to the GST cuts. Beyond that, normal cyclicality is expected to prevail but at a higher level of consumption.

Earnings Recovery Could Drive Market Upmove

Uniyal said earnings in heavy-weight sectors like BFSI, IT, and consumption have almost bottomed out. For lenders, NIM compression was less than estimated in the quarter and is likely to reverse from Q3 FY26. He estimated credit growth to reach 13% by FY27.

Supportive factors include cuts in GST, benign inflation, falling interest rates, and fiscal steps such as income tax relief, which can together trigger a consumption revival. “A trade deal with the US could also lower uncertainty,” he said, adding that India’s market premium to emerging markets is now largely in line with its historical average and could allow the next leg of the market upmove.

New Mutual Fund Rules and Their Implications

On new SEBI mutual fund regulations, Pranab Uniyal said that these changes are directed toward enhancing transparency and reducing costs for the benefit of investors, apart from strengthening governance in the sector. He said, “These regulations level the playing field for new AMCs, provided they adopt a low-cost, tech-driven and transparent approach.”

Uniyal said that though established AMCs have advantages of scale, new entrants are subjected to stricter operational stipulations. TER compression, tighter brokerage control, and governance measures raise the initial cost of operations but are helpful in building long-term investor confidence. Mutual funds should also be encouraged to increase allocations to REITs and INVITs; this will provide space for innovative strategies on the part of new players.

Factors Attracting FII to Indian Equities

Pranab Uniyal said that India has seen strong FII outflows over the last year on the back of corporate earnings downcycles, rich valuations, and global trade tensions. FIIs have sold close to $30 billion in Indian equities since the market peak in September 2024, driving foreign ownership to multi-year lows.

However, he believes that this trend is now reversing. Key drivers include:

• Growth-Supportive Policies: Expects growth supportive policies via rate cuts from RBI, improving liquidity conditions, thereby setting a strong base for equity investment.
• Historic Underperformance Catch-up: India’s market has underperformed emerging markets by almost 25% in the last two decades, which may create a strategic opportunity for value-seeking investors.
• Corporate Earnings Recovery: EPS downgrades have stabilized. Q2 FY26 results were better than expected, boosting investor confidence.
• Normalizing Valuations: The premium of India’s P/E over the Asian region has corrected from 85–90% to 45%, closer to the 20-year average, thereby creating scope for market re-rating.

Outlook for NBFCs and Lending Sector

Pranab Uniyal remains positive on large, diversified NBFCs with a good track record for credit-quality management. He sees the latter growing faster than system-wide credit growth. On the other hand, he remains cautious about microfinance institutions. Among lenders, he has preferred PSU banks over recent quarters.

Conclusion

In a nutshell, Pranab Uniyal at HDFC Tru projects a positive outlook for India’s equity markets in 2026, driven by growth-supportive policies, recovery in corporate earnings, normalized valuations, and improved sentiment by FIIs. His sectoral guidance would include large banks, auto, insurance, real estate, capital goods, and chemicals, while advising caution on mid-cap IT, upstream oil and gas, and microfinance. As India positions itself for a recovery, investors may find opportunities across carefully selected segments of the market.