Next 1-2 quarters' earnings key for FIIs' view of India: Akash Hariani

It has been a trying phase for the Indian equity markets as they have grappled with a host of global and domestic developments. AKASH HARIANI, joint managing director at Motilal Oswal Private Wealth, tells Puneet Wadhwa in an email interview that times like these re-emphasise the need for having proper asset allocation and managing it within stated pre-defined guidelines/limits. Edited excerpts:

 

How are your high-networth and ultra-high-networth clients reacting to the downturn in the equity markets? 

The recent correction has made clients look again at their asset allocation and make adjustments, if required. Risk management has again come into the picture after chasing returns for quite some time. Forgotten asset classes like fixed income are being talked about, along with hybrid funds and offshore funds exposure from a diversification perspective. Clients have turned cautious in the past two months, after buying the correction from the October-December 2024 period. Now, the focus is more on some readjustment of the portfolio according to evolving market conditions.

 

What has been your investment strategy since the market fall started in September 2024? 

We have been cautious on the markets for the past six to eight months, given the evolving geopolitics and concerns around valuations. Hence, our approach has also been more conservative towards equity investment. We have preferred hybrid and largecap funds/strategies and staggered deployment in flexicap/mid and smallcap strategies.

 

Other than equities, we have seen traction coming into the private credit and private equity space. Private credit industry assets under management have grown quite rapidly in the past three to four years, and changes in debt mutual funds (MFs) taxation have also led to clients looking into this asset class very positively.

 

What is the ideal portfolio mix between different asset classes you suggest, given the road ahead for the markets? 

There is no ideal portfolio mix that can be suggested because it varies depending on the client’s investment objective, risk profile, investment horizon, liquidity needs, and other aspects. Times like these re-emphasise the need for having proper asset allocation and managing it within stated pre-defined guidelines/limits.

 

Is the bulk of foreign investors selling behind us? 

In the secondary market, we have seen the foreign institutional investor (FII) selling in the last two months (calendar year/CY 2025) being almost the same as seen in full CY 2024. However, CY 2024 saw FIIs being active in the primary markets through participation in initial public offerings, etc., as buyers. This year that has not been the case.

 

The rise in US yields and the re-emergence of opportunities in China, along with valuation concerns in India, led to outflow from FIIs. With the yields more or less stabilising (along with a fall in the dollar index) while a 12-15 per cent correction leads to valuations also becoming reasonable/fair (especially in the largecap), FII outflow can moderate and slow down, if not be net buyers. The next one or two quarters’ earnings will be key for FIIs to look positively at India.

 

Is it time to start buying selectively? 

Valuations have definitely corrected and are looking better compared to five or six months ago. Largecaps, especially Nifty 50, are trading now below the 10-year average price-to-earnings multiple on a one-year forward basis, which makes it reasonable or fair from a valuation perspective. However, midcap and smallcap indices’ valuations are still at a 20-25 per cent premium compared to the historical average.

 

In the long run, markets have rewarded patient investors, as they have delivered returns in line with the nominal gross domestic product growth despite many corrective periods in between. So, yes, we believe this is the time to start buying selectively but conservatively — one can look at hybrid/largecap funds for deployment at current levels. It is better to go for active funds rather than passive strategies.

 

From a sector perspective, banking, financial services and insurance is clearly standing out due to earning visibility along with comfortable valuation.

 

Does it make sense for investors to diversify to other geographies at the current levels? 

It’s slightly trickier to answer this due to various moving parts and ongoing geopolitical developments amid tariffs, etc. However, keeping that aside, from a valuation perspective, China is the one that presents some opportunities for diversification. But it is difficult to implement those strategies due to most MFs reaching the limit set by the Reserve Bank of India for offshore investments. However, offshore funds through the liberalised remittance scheme via Gujarat International Finance Tec-City or direct exposure can be explored (prefer the fund route rather than direct exposure). From a prospect-wise perspective, after a recent correction, Indian equities offer similar risk/reward. 

TAILORING PORTFOLIOS: NAVIGATING RISK & UNCERTAINTY

 

*  The perfect mix doesn’t exist:  Portfolio mix varies by client’s objectives, risk profile, horizon, and liquidity needs

 

*  Manage within defined limits:  Stick to preset guidelines to navigate volatility

 

*  Adapt to changing markets: Proper asset allocation is vital, especially in uncertain times