Global funds make $2.1 billion comeback on D-Street as earnings outlook improves

Market Overview - Global funds have purchased nearly $2.1 billion of local shares in February, indicating the strongest inflows since June [1] - The rebound follows a record exodus last year, as investors shifted focus to AI-driven markets in the US, China, and South Korea [1] Economic Indicators - The inflow rebound suggests easing pressures on Indian equities, aided by a recent trade deal with the US that alleviated uncertainty for the $5.2 trillion market [2] - Projections indicate a nominal growth rate of about 10% for the economy in fiscal 2027, with corporate earnings expected to grow by approximately 15% [3] Performance Comparison - Despite a positive momentum, Indian equities have underperformed compared to the MSCI Asia Pacific Index, which surged by 25% in 2025 [6] - MSCI India members are trading about 4% below their five-year average price-to-earnings ratio, presenting a potential opportunity for investors [6] Earnings Growth - Sales for FTSE India Index companies increased by 10% year-on-year in the December quarter, while net income rose by 13% [7] - Consensus estimates suggest a 16% earnings growth for over 250 companies in fiscal 2027, supported by a recovery in nominal GDP growth, cyclical recovery in private capex, and sustained consumption momentum [8][7] Sector Preferences - Financial companies are favored by global investors, with recent additions in metals and capital goods sectors [9] - Some investors remain cautious about interpreting the inflows as the beginning of a structural bull run, especially following a significant selloff in India's software and tech sectors, which lost over $50 billion in market value due to AI concerns [9] Investment Sentiment - Foreign funds' buying is partly tactical, influenced by softer US yields and the relative appeal of emerging markets [10] - Global positioning towards India is described as tentative but clear, with a movement back toward neutral weight as valuations become more reasonable and earnings revisions stabilize [10]