Inside India newsletter: The worst might not be over for Indian equities

Hello, this is Priyanka Salve, writing to you from Singapore.

Welcome to the latest edition of “Inside India“ — your one-stop destination for stories and developments from the world’s fastest growing large economy.

Indian markets have been rattled by the Iran war, with foreign investors fleeing and valuations slipping to rare lows. But fund managers tell me that low prices by themselves won’t lure investors back.

Enjoy!

Any thoughts on today’s newsletter? Share them with the team.

For months, trade tensions with the U.S. were dubbed the biggest overhang on Indian equities. When the two countries agreed on a trade pact in February, foreign investors poured nearly $2.5 billion into Indian stocks. But a month later, the market has completely reversed course.

India’s benchmark Nifty 50 fell more than 10% in March, as foreign investors sold over $12 billion in equities — the worst monthly sell-off on record.

The index now trades at a price-to-earnings ratio of 19.6 times, a level rarely seen over the past decade. The only two occasions in the past ten years when Indian benchmark valuations dipped this low were during the early months of the Covid‑19 outbreak in 2020 and the Russia‑Ukraine war in 2022.

So, I asked fund managers whether Indian markets are oversold — and whether these near-historically low valuations could be a good point to invest in the fabled “India growth story.”

The escalating conflict in the Middle East has revealed that India “is structurally exposed,” Pramod Gubbi, co-founder of portfolio management firm Marcellus Investment Managers, told me. If there is no quick resolution to the war and oil prices remain elevated, India’s fiscal deficit, inflation, and currency will all come under pressure — which in turn will “affect demand and earnings,” he said.

Gubbi added that earnings growth in India has been weak for more than a year, and the current conflict will exacerbate it.

Some of his concerns echo those raised by India’s Chief Economic Advisor V. Anantha Nageswaran in a report published March 28.

The world’s fastest-growing economy’s forecast of 7.0%–7.4% growth for the financial year ending March 2027 faces “considerable downside” risk due to rising energy costs and supply‑chain disruptions linked to the Iran war, Nageswaran warned. He also expects the trade deficit to “rise significantly” and lead to a “widening [of] the current account deficit.”

In response to these pressures, the Indian government introduced two key interventions last week. The first aimed to curb the falling rupee by limiting currency‑hedging positions that banks can take. The second was an excise duty cut on petrol and diesel to prevent a spike in retail fuel prices that could worsen inflation.

While the rupee has strengthened thanks to the currency curbs, Nitin Jain, chief executive and director of Kotak Mahindra Asset Management Singapore, argued that keeping fuel prices artificially low for “even a quarter” could hurt government spending on “productive” activities like capex.

Nomura in a note Monday estimated that a 10‑rupee‑per‑litre excise cut could have a total annual fiscal impact of 1.65 trillion rupees ($17.6 billion). “Higher subsidy requirements [fertilizer and fuel] and potential revenue shortfalls may widen the fiscal deficit, underscoring the need for expenditure prioritization,” Nageswaran said.

Such diversion of funds away from productive capex toward subsidies sends the wrong signal to foreign investors, Jain added.

While some of these issues are a significant overhang on the Indian markets, they could be transient if the Iran war ends sooner rather than later. The more stubborn worry with India is the lack of strong earnings growth.

Earnings cuts reported between April and December 2025 “are the largest seen in the past four years,” noted Indian brokerage Ambit Capital in a report shared with CNBC. Foreign investors, it said, will now focus “on earnings credibility,” and lower valuations alone will not convince them to return.

Indian markets have long commanded a valuation premium because businesses grew rapidly, supported by rising disposable incomes, job creation, and a consumption surge, experts said, adding that there are growing concerns among investors about this narrative.

But today, net overseas direct investment into Indian businesses is languishing between $1 billion and $2 billion, according to data shared by Indian ratings and research firm Care Ratings on Tuesday. India’s net FDI flows as a share of GDP are also significantly lower than those of Brazil and Vietnam, World Bank data shows.

Experts say multinationals and foreign investors still want a share of India’s consumption story — but the country’s inability to create more white-collar jobs is undermining that narrative. According to a report by India’s Azim University in mid-March, only a small share of graduates are securing “stable salaried jobs within a year of graduation.”

Consumption is a major driver of India’s economy and a key magnet for foreign investment, but “without jobs, there won’t be consumption,” said Gubbi of Marcellus.

Need to know

India’s telecom giant Bharti Airtel raises $1 billion for its data center arm from private equity firms
Nxtra Data, Airtel’s data center arm, will receive $435 million from Florida-headquartered Alpha Wave Global, $240 million from existing investor Washington-based Carlyle, and $35 million from New York City’s Anchorage Capital.

IndiGo names industry veteran William Walsh ‌as its new chief executive
Walsh, 64, is currently the director general ‌of the International Air Transport Association and will join the Indian airline in early August. Walsh has served as the CEO of British Airways.

India takes a ‘huge hit’ on tax revenue to keep fuel prices from surging during the Iran war
The Indian government has cut central excise duties on petrol and diesel for domestic consumption by 10 rupees ($0.11) per liter each, to keep pump prices from rising as the Iran war disrupts global energy supplies. This will be a “huge hit” on the government’s tax revenues, said Petroleum and Natural Gas Minister Hardeep Singh Puri.

Coming up

April 6: HSBC Composite final PMI for March

April 8: RBI’s monetary policy meeting