Foreign institutional investors (FIIs) are returning to Indian equities as corporate earnings growth has resumed double-digit expansion in dollar terms, according to Samir Arora, founder and fund manager at Helios Capital.
Recent foreign inflows were initially triggered by a 15% decline in crude oil prices and speculation around potential tax-related changes. However, given that the capital came in over a compressed period of just one week, Arora believes much of it represents short-covering by hedge funds rather than fresh long-term allocations.
The more significant structural shift, he said, is being driven by an improvement in corporate earnings. Over the past two years, domestic earnings growth of 9% to 10% was largely offset by annual currency depreciation of 5% to 6%. With these headwinds easing, Indian corporate earnings are now growing at 10% to 12% in dollar terms, making the market increasingly competitive against global peers, where earnings growth is plateauing at 8% to 10%.
“India has to get back under weight that people had made for 2 years, so that money has to come back,” Arora said, adding that the negative relative and absolute factors that had weighed on Indian equities have now dissipated.
India does not need an AI slowdown to outperform
Addressing concerns over global competition for investment flows, Arora dismissed the argument that Indian equities need a slowdown in artificial intelligence (AI) stocks to outperform.
He pointed out that valuations in the AI space remain robust, with companies such as Anthropic commanding valuations of around $1.5 trillion, while political rhetoric in the US is unlikely to derail approvals for data centre projects.
“Let’s not position ourselves in our minds that we are an anti-AI play and that we will only do well when the world does badly,” he said, expressing confidence that Indian equities can outperform even in a healthy global market environment.
Helios Capital’s portfolio strategy
On the investment strategy, Helios Capital follows a growth-oriented approach, with its portfolio spread across 30–40 stocks to manage concentration risks.
The strategy has delivered a 65% return for the Helios Flexi Cap Fund in just under three years, outperforming the broader market’s gains of 35% to 40% over the same period.
The portfolio includes early investments in new-age companies such as Paytm, which was acquired at around ₹450–500, Ather Energy and Syrma, which was bought at approximately ₹100. These investments are balanced with holdings in traditional large-cap companies.
The fund has also recently bought shares of HDFC Bank after staying away from the stock for three to four months. Arora said the investment comes amid a shift in foreign investor sentiment towards Indian equities.
Heavy foreign selling had earlier weighed on large-cap banking stocks. However, the reversal in flows could create a positive cycle, helping these stocks recover and move towards more reasonable valuations.
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Why Samir Arora sees foreign investors returning to Indian equities