The only question now is where FII flows will move. While domestic institutions have been providing a cushion to the equity markets for years, liquidity isn’t really a concern. But I was just looking at the July data—out of the 22 sessions, FIIs have been net sellers in 17, and on some days, quite significantly. Do you think this flight of FIIs could pose a risk for us?
Vikas Khemani: I don’t think it’s something that’s happening in a hurry. I mean, I don’t think this particular event will lead to FIIs pulling out. As the Fed rate starts coming down, I believe you’ll see FIIs returning. If you look at global equity portfolios, India is still underweight. I’m sure that with a structural view, this will change eventually. Technically, there might be some ups and downs, but this event alone won’t alter India’s long-term attractiveness. India is primarily a domestic growth story, not an export-led one. No FII comes to India because of exports, so I don’t think this changes anything fundamentally.
Let’s also get your take on the pharma sector. You’ve been bullish on this space, and recently, earnings have been quite strong. But now with the blanket 25% tariff announcement—although Donald Trump has stated that pharma tariffs will be dealt with separately and mentioned a 200% number—do you think the current stance towards India could bring challenges for Indian pharma companies, especially given their large exposure to the US?
Vikas Khemani: Technically, there could be a quarter or two of adjustment, but structurally, I don’t think it’s a problem. Most Indian pharma companies supply generic drugs to the US, which accounts for over 45% of the US generic medicine market. Even if tariffs are imposed, Indian companies can pass on the impact after a brief adjustment period. These companies don’t have high margins or ROCEs to absorb such costs. The 200% tariff that Trump is talking about applies mainly to innovator drugs, where prices in the US are significantly higher than in other developed markets. That’s not where Indian companies operate. Also, the US can’t easily replace its 45% market share sourced from Indian suppliers. The supply chain and capabilities are already established. So, after a couple of quarters, the cost will likely be passed on to the end consumers in the US.
So what’s your message for investors? It seems the consensus now is to stick with domestically linked sectors. Do you agree?
Vikas Khemani: Stay put. Invest. Continue believing in India. Nothing in the Indian growth story is changing because of this. Technical risks like these will come and go. Also, let’s not forget—this is just one event. We’ve seen rollbacks and negotiations before. This isn’t a final verdict. I’m sure there will be a treaty eventually—both the US and India need each other. These negotiation tactics are common, like we’ve seen with other countries. Yes, the complexity is greater here due to the size and nature of the two economies, but it will be worked out. Even if this tariff becomes permanent, its impact is not very large. The India story is far more robust than this one factor. That said, I believe this issue will also be resolved. So continue to stay invested. I’m not saying the export-oriented story is over either. It’s still intact. Just don’t panic during such times—that’s the best advice I can give.
