Prateek Agarwal, MD & CEO of Motilal Oswal AMC, believes these pacts could mark a turning point in India’s growth narrative, with the Make in India initiative emerging as the biggest beneficiary.
In an ETMarkets Livestream with Kshitij Anand, Agarwal explains how lower uncertainty, improving competitiveness and shifting global supply chains can strengthen India’s position against other emerging markets, revive investor sentiment and shape portfolio strategies in the months ahead. Edited excerpts:
Well, it was indeed a historic deal that will not only boost ties but also turn sentiment positive for both domestic investors and FIIs. So, how should Indian investors interpret this?
Prateek Agarwal: It’s not just this deal, this has been a season of agreements. Over the last few months, we’ve seen a range of deals being signed, and in our view, they open up strong opportunities for manufacturing in India. The uncertainty that existed before these agreements is now behind us. Look at it this way: India already has competitive strengths in manufacturing. Make in India has been a policy focus for a long time, and now, with deals in place with the world’s two largest economic blocs–the US and the EU–it’s a dream come true for the Make in India initiative.
Absolutely. In fact, as you rightly pointed out, over the last 30 days we’ve struck two deals, one with the EU and the other with the US. So how does this improve India’s position versus other emerging markets from an investment perspective?
Prateek Agarwal: If you were setting up a factory to supply to the West, India is already competitive on labour costs, much like several countries in the Asian region. But now, our duty rates are also slightly more favourable. Compared with our immediate neighbours and other manufacturing destinations, we’ve secured a better deal.
More importantly, India has several structural advantages, especially the depth and quality of its manpower. We have a large pool of trained workers that allows manufacturing to scale up without excessive cost pressure over a long period.In many other economies, you may see 1-2 years of strong manufacturing growth, but the initial labour-cost advantage quickly erodes because the depth of the workforce isn’t sufficient. India, however, has a clear home-country advantage.
As the world’s most populous nation, with over 140 crore people, even supplying the domestic market offers scale. Combine that with exports to the West, and it becomes a very powerful proposition.
For investors, think about it this way: until recently, when most other countries had trade deals, and India did not, it appeared we were on the wrong side of, say, the US. This agreement removes that concern. There is now a sense that it’s business as usual. Globally, every large market has had a ‘before’ and ‘after’ phase around trade deals with the US, and we hope to see something similar for India.
Also consider this, global headlines should now be talking about not one, but two major trade deals. At the same time, another key concern for investors, currency depreciation, has begun to reverse. As we discussed earlier, when deals are signed, confidence improves, and currencies tend to appreciate. That’s exactly what we’ve seen. Together, these factors are positive for attracting foreign flows and rekindling foreign investor interest in India.
In fact, my next question was also around rupee depreciation and the reversal of foreign investor flows. Foreign investors pulled out more than Rs 1.6 lakh crore in 2025, and we’ve already seen sizable FII outflows in 2026 as well. That said, as you rightly pointed out, once such trade deals are struck, some reversal on this front is likely. Also, Motilal Oswal has recently announced the launch of the Motilal Oswal Financial Services Fund. As I understand it, this is an open-ended scheme focused on the financial services sector. The new fund offer opened on January 27 and is set to close on February 10, 2026. Could you take us through the key features of the fund and explain why this is the right time to launch it?
Prateek Agarwal: So let me explain our thinking. We are growth investors, perhaps one of the few of our kind in the country, and we see this phase as a period of significant change. So why launch now and not three months ago? We had a planned launch calendar and have been rolling out funds accordingly. That said, our BFSI fund, in our view, will look very different from others.
If you look at growth, large banks once used to be the primary drivers. Today, however, they are delivering near-index levels of earnings growth. Our belief is simple: markets follow earnings growth. Within financial services, we believe the growth baton is now passing from banks to capital markets.
As a result, our fund construct is expected to have a higher allocation to capital market plays, this would include asset management companies, brokers, the broader ecosystem and exchanges. That is one key differentiator.
Second, within banks and NBFCs, we are focusing on institutions that are well-capitalised, are receiving fresh capital and stand to benefit from improving credit ratings and strong equity liquidity on their balance sheets. Such entities, in our view, are well-positioned to deliver superior growth.
Lastly, as raising retail deposits becomes increasingly challenging, many banks are turning to wholesale funding. This is levelling the playing field between players with large distribution networks and those without, creating certain tactical opportunities.
Overall, we expect the fund to be highly growth-oriented, in line with the firm’s DNA, and to run a tightly focused portfolio. Most of our portfolios typically hold between 20 and 35 stocks, and a similar approach will apply here. If I had to be specific, we are looking at around 25 names, with individual positions in the 3-5% range.
Absolutely. Growth-oriented companies will form a key part of the fund, which also aligns well with the Budget’s emphasis on growth, particularly the government’s capex push and policies supporting Make in India and the broader financial system. That brings me to the next point: what does the India-US trade deal mean for India’s standing in global equity allocations versus other emerging markets?
Prateek Agarwal: India has been the worst-performing emerging market over the last 12-13 months, leading to a sharp valuation correction. Markets such as Korea have delivered returns of around 80%, while India has barely managed single-digit returns over the same period. Most other emerging markets have generated returns of 20% or more.
Now, when global newspapers carry front-page headlines saying “deal one” on one day and “deal two” the next, it inevitably jolts global investor attention towards India. These deals help correct several narratives that had been weighing on the market. One dominant theme in emerging markets was that India was underperforming, prompting investors to pull money out and rotate into better-performing markets.
With valuations now much more reasonable and key issues being addressed, if India’s story starts to look compelling again, we could see a fairly swift reversal in investor sentiment. Global investor flow data—perhaps as early as today or tomorrow—should begin to reflect this shift. Domestic investors, too, are likely to regain confidence, buoyed by improving market sentiment.
And I’m sure this is another key question from an investor’s perspective. Looking at the Budget, which Indian sectors are likely to benefit the most, from the Budget as well as from the trade agreements we have seen?
Prateek Agarwal: We have consistently said that the absence of a trade deal impacted only a very small part of the economy and the market. The sectors affected were largely gems and jewellery, which barely feature in the listed market, apparel to a limited extent, and shrimp exports, which again form a very small slice of the market.
So, if you look at the first-order impact, the immediate beneficiaries are textiles, shrimp exporters and jewellery. However, these are not major constituents of the market. A handful of manufacturing companies may see improved prospects, but beyond that, the real change is in sentiment.
Take electronics and pharmaceuticals, for instance, they were largely exempt even earlier. Globally, duty structures for steel, aluminium and copper were the same for everyone, and that continues. The key difference for India was the persistent overhang, the fear that things could worsen. That risk has now been taken off the table.
With that uncertainty removed, doors have opened. This is only the first leg of the deal; a broader agreement could follow in the future, potentially bringing India closer to becoming part of a larger trade bloc. That would be even more positive. But even at this stage, simply removing uncertainty is a significant boost for the Make in India initiative.
That’s well put, because the biggest overhang was uncertainty. With the deal now in place, at least that concern has been addressed. And as you rightly pointed out, only a small part of India Inc was actually getting impacted. My next question follows from that, could this deal influence earnings growth for Indian companies over the next few years?
Prateek Agarwal: As sentiment improves, confidence to invest rises. In the near term, companies operate largely within existing capacities, so the impact may not be immediately visible. However, the longer-term impact can be far more meaningful. Benefits will accrue across the value chain, especially if we eventually see lower duty rates on steel, aluminium and copper. That’s how this should be viewed.
Also, considering current valuations and the fact that emerging market funds had earlier been giving India a pass, a change in perception can alter capital flows. If foreign inflows return, the rupee strengthens, and we are already seeing signs of that. Concerns around bond yields rising due to higher government borrowing in the Budget also ease. As foreign capital comes in, liquidity improves, which puts downward pressure on bond yields and expands market breadth.
This is critical because when a currency is persistently weakening, performance-oriented capital, such as hedge funds and ultra-HNIs, tends to stay cautious. Currency volatility severely impacts leverage, particularly in forex-linked strategies. If that volatility subsides, these investors can resume normal activity. That, in turn, becomes a significant tailwind for growth-focused investors like us.
As we’ve discussed, India has now signed two historic trade agreements, one with the EU and the recent one with the US. From a portfolio perspective, does this strengthen the long-term India investment story? And which sectors should investors focus on now? Should the emphasis be on growth-oriented themes or financial services? How should one really position portfolios at this stage?
Prateek Agarwal: I think the biggest takeaway is that Make in India gets a very significant boost. The Budget also helped reset the narrative. The FY25–26 Budget initially shifted the discourse towards consumption—there were tax cuts, a pickup in consumption, the GST cuts in September and October, and so on. Many investors began to believe that India’s growth engine would move away from capex toward consumption.
However, this Budget clearly brought capex back to the forefront. That’s the first point. Second, trade deals with two of the world’s largest economic blocs provide a major positive for the government’s Make in India initiative. So, at a thematic level, Make in India is the biggest first-order beneficiary.
Yes, some companies are better positioned than others and will benefit more immediately, but from a broader perspective, the overarching theme is manufacturing-led growth. Beyond that, banks stand to gain as credit growth improves. If bond yields soften, NBFCs also benefit. Many of the concerns that dominated markets just days ago start to get addressed, and the opportunity set becomes much broader.
Our sense is that markets were gripped by excessive pessimism. Frankly, several positive developments were not being recognised, such was the strength of the bearish sentiment. The two trade deals announced in quick succession have the potential to break that bear grip. A shift in sentiment, in itself, is a powerful catalyst.
What’s also interesting is that if you look at recent money flows, they are largely coming through SIPs — and even those are running below normal levels. That suggests a lot of money is sitting on the sidelines. As confidence returns, we should see fund flows pick up and greater participation from retail investors, both through mutual funds and direct equity investments.
Now that we are talking about a more positive environment and sentiment concerns seem to have eased, are there any risks Indian investors should still be mindful of despite this positive development?
Prateek Agarwal: When the deal had not happened, my standard advice to investors was to invest gradually between January and March. Historically, this is a very good investment window in India, though it tends to be volatile. You have end-of-year considerations ahead of the March 15 advance tax payment, the Union Budget, and the uncertainty that typically surrounds it.
So, my view was to stagger investments during this period, and if a deal came through, convert SIPs into lump-sum investments. That has been my pet line.
Now that the deal has been signed, the one remaining pocket of volatility investors should be aware of is around the March 15 advance tax date. This period often sees some market weakness as many entities close their books and prepare for the new fiscal year. That said, such dips can be used as opportunities.
But it is important to recognise that the broader setup is positive. A lot of bad news is already reflected in prices. Q2 earnings were good, and Q3 results—barring one or two companies—were also fairly strong. As we move ahead, the low base of last year should support year-on-year growth in Q3 and Q4. Overall, there is quite a lot to look forward to.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)