Mukherjee said markets have been witnessing a prolonged tussle between foreign investors and domestic capital. “Promoters and private equity have been exiting in parts, financed largely by Indian retail investors who remain confident about the India growth story,” he said. However, early signs suggest sentiment may be shifting in favour of inflows.
“The biggest pivot we are watching is the improvement in high-frequency indicators, particularly around consumption. Over the last 12–14 months, these indicators were weak, but we are now seeing a broader and more meaningful pickup on the ground,” Mukherjee said. This, he believes, could attract investors who have been net sellers of Indian equities in recent years.
Strategic investors lead, FPIs may follow
Mukherjee pointed to a surge in strategic and private equity interest in Indian banking and financial services in 2025 as a key signal. “This year has seen a record number of strategic transactions in financials—not necessarily in dollar terms, but in deal count and the quality of investors,” he said.
He noted that financials account for nearly a third of India’s market capitalisation and often act as a bellwether for broader foreign flows. “Typically, financial investors follow strategic, long-term investors. When there is a strong vote of confidence from that cohort, FPIs tend to follow,” Mukherjee said.
While he refrained from predicting exact timing, Mukherjee said even a marginal shift from net selling to net buying by foreign investors could meaningfully move markets. “Domestic demand—from SIPs, EPFO and NPS—already forms the backbone of equity demand. If foreign inflows turn even slightly positive, the upward pressure on prices can build quickly,” he said.
Budget, AI gap unlikely to deter flows
Addressing concerns around the Union Budget and India’s limited exposure to artificial intelligence (AI) plays, Mukherjee downplayed the risks. “Budgets are often discussed far more than they deserve in terms of actual market impact,” he said.On AI, Mukherjee acknowledged that India’s lack of listed AI-focused companies partly explains its underperformance versus global markets this year. However, he argued that this could turn into an advantage. “India can actually be a contra-AI allocation for global investors looking to diversify away from markets driven almost entirely by AI capex,” he said.
He also expects India to eventually see AI-linked listings, including data centre plays, by 2026. “The absence of AI today is unlikely to be a decisive reason for foreigners to avoid India going forward,” Mukherjee added.
Alternatives: Strong case for InvITs, REITs and gold
On asset allocation, Mukherjee stressed diversification rather than choosing between equities and alternatives. He reiterated a strong positive view on InvITs and REITs, citing a maturing market, regulatory support and a robust pipeline of new issuances. “This segment has evolved into a distinct asset class, and appetite should remain strong in 2026,” he said.
Mukherjee also expects gold to remain in a structural, multi-year bull phase. “Geopolitical uncertainty, efforts to reduce dependence on the US dollar, and a structurally lower interest-rate environment have all reduced the opportunity cost of holding gold,” he said.
“With no immediate alternative to the dollar, gold remains the only readily available hedge. These factors together support a sustained rally over the coming years,” Mukherjee added.