A sharp decline in crude oil prices, improving earnings visibility and signs that foreign institutional investor (FII) selling may be losing steam have significantly improved the outlook for Indian equities, according to Kunal Vora from BNP Paribas India . While near-term earnings may reflect the temporary disruptions caused by higher commodity prices and currency movements, he believes the broader market setup has become considerably stronger over the past few weeks.

Speaking to ET Now, Vora said investors should focus less on whether foreign money returns aggressively and more on whether the intense selling pressure witnessed in recent months begins to ease. In his view, domestic institutional flows remain strong enough to support the market as long as earnings continue to grow.

Market Conditions Improve as Crude Retreats
The fall in crude oil prices to the $70-75 per barrel range has emerged as one of the biggest positives for the Indian economy. According to Vora, softer crude supports corporate earnings, strengthens the fiscal position, eases pressure on foreign exchange reserves and improves the interest rate outlook.While weather remains a key risk, particularly with concerns over El Niño and rainfall deficits, he believes those risks are relatively smaller than the challenges posed by elevated crude prices earlier this year.

“Compared to where we were two months back, the market construct is looking better. Crude at $70-75 is a big relief. It has positive implications for earnings, forex, interest rates and the government’s fiscal position. The reasons for FII selling have reduced, valuations have become slightly more attractive and the earnings outlook is improving,” he said.
Earnings May Be Weak, But Pain Could Be Temporary
The upcoming earnings season is expected to capture the impact of the recent spike in crude prices and currency fluctuations. However, Vora cautioned against interpreting one weak quarter as a longer-term trend.
He believes sectors such as consumer staples and automobiles could witness temporary margin pressure, but expects those headwinds to fade during the second half of FY27.
“This quarter will reflect the problems we saw last quarter. I would not extrapolate them into a long-term trend. The impact on consumption-oriented sectors will be visible, but it is likely to be short-lived. Our FY28 earnings outlook has not changed materially because this looks like a temporary phenomenon rather than a structural headwind,” he said.

Private Banks Continue to Top the Preference List
Financials, particularly frontline private sector banks, remain among Vora’s highest-conviction investment ideas.

After a subdued FY26, he expects earnings growth of 15-18% for leading private lenders during FY27. Attractive valuations across price-to-earnings and price-to-book metrics further strengthen the investment case.

“Private sector banks continue to remain one of our preferred sectors. We expect earnings growth of 15% to 18% in FY27, while valuations remain supportive. Heavy FII selling has weighed on the sector, but if that pressure eases, banks should benefit from improving flows,” he said.

Domestic Money Can Carry the Market
Vora believes investors are placing too much emphasis on the return of foreign portfolio investors. Instead, he argues that simply reducing the pace of FII selling could be enough for domestic investors to sustain the market.

He pointed out that India witnessed unprecedented foreign selling over the past few months, making any moderation in outflows a meaningful positive.

“India does not really need FPI money to come back in a big way. What we need is a lack of selling. If incremental FII selling eases, domestic money can continue doing the heavy lifting,” he said.

Consumption, Telecom Also Offer Attractive Opportunities
Besides financials, Vora remains constructive on consumption stocks, especially consumer staples, following the recent GST rate cut. He believes improving demand and pricing power could support earnings after the temporary crude-related impact fades.

Telecom is another sector he favours because of its consistent pricing power and the possibility of another tariff hike over the coming quarters.

“Consumer staples have become attractive after the GST rate cut. Telecom also continues to offer strong pricing power, and we expect tariff hikes over the coming quarters,” he said.

On the other hand, he believes pharmaceuticals, utilities and automobiles may underperform due to expensive valuations, easing defensive demand and possible margin pressures.

IT Faces Structural Questions Despite Attractive Valuations
While valuations in IT services have corrected meaningfully and dividend yields have become increasingly attractive, Vora believes the sector continues to grapple with long-term uncertainty stemming from artificial intelligence.

He does not expect widespread degrowth, but says investors are increasingly questioning the industry’s long-term growth assumptions.

“We do not expect the sector to start degrowing, but terminal growth assumptions have changed because of AI. This has become more of a value call and a hope that growth eventually bottoms out,” he said.

He also highlighted the broader implications of a slowdown in IT hiring, noting that the sector remains one of India’s largest employers and a significant contributor to wage growth.

Premium Valuations Are a Structural Feature
Addressing concerns over India’s valuation premium relative to global markets, Vora argued that higher multiples are not unique to IT but reflect a broader characteristic of Indian equities.

Strong domestic liquidity and sustained investor participation have allowed Indian stocks to command premium valuations across sectors.

“Indian valuations across sectors are higher than global peers. That is a structural feature of our market and not unique to IT. I do not expect that premium to disappear,” he said.

Large Caps Offer Better Value Than Mid and Small Caps
Although mid- and small-cap stocks have delivered exceptional returns, Vora believes valuations have become stretched after sustained domestic inflows and relatively lower FII ownership.

He now sees stronger value emerging in large-cap companies.

“Midcaps and smallcaps have become much more expensive relative to largecaps. We currently see better value in the large-cap space, while some froth remains in the broader market,” he said.

Focus on Earnings Rather Than Foreign Flows
Looking ahead, Vora expects market returns to broadly track corporate earnings rather than be driven by large foreign inflows. He believes India can continue delivering respectable returns if earnings growth remains in the low-to-mid teens and foreign selling gradually subsides.

“We are banking on domestic money to drive the market, not FIIs. If earnings grow in the mid-teens and FII selling eases, returns should broadly follow earnings even without large foreign inflows,” he said.