Fund Manager Insights: Why FII Selling Isn't the Full Story for Indian Markets
Amit Premchandani, Fund Manager at UTI AMC, discusses why FII selling isn't the complete picture for the Indian markets, emphasizing the importance of valuations, earnings quality, and sectoral opportunities.
Indian EquitiesFii SellingUti AmcBfsiHealthcareReal EstateAug 26, 2025
Premchandani asserts that historically, long-term returns of equity as an asset class are much superior to bank FDs, and short-term volatility is a natural part of the equity market. While the market cap of companies is essentially the discounted cash flow of future earnings, it does not change significantly based on short-term events. What changes is the narrative, making stocks that rely on narratives more at risk compared to those backed by solid underlying growth.
He also points out the macro shock from a sharp increase in US tariffs on goods and its impact on global growth, particularly affecting India, which has been subjected to one of the highest tariffs. Despite this, Premchandani maintains a positive outlook on the market, noting that valuations for large caps are now in the fair value zone, while small and mid-caps remain expensive.
The recent earnings season was broadly in line with marginal cuts in earnings estimates, unlike the last few quarters, which saw higher cuts. However, the quality of earnings was slightly below par, driven by the cyclical and commodity-oriented sectors. Topline growth has been muted, but EBITDA margins expanded in Q1, and PAT growth was marginally ahead of expectations, driven by the oil & gas and cement sectors. Nifty earnings growth was around 8%, primarily driven by telecom and a few banks.
Premchandani is particularly positive on the BFSI sector, especially large private banks. These banks have seen improving liquidity, regulatory relaxation, and pro-growth monetary policy with 100bps of rate cuts over the last few quarters. The ROA profile for large private banks has been decent, and loan growth is expected to revive. The capital is adequate, and large private banks stand out from an intrinsic value framework, offering opportunities for those who follow this approach.
The healthcare sector is another area of optimism. The share of healthcare in India's GDP is less than 5%, but this is expected to increase as the population ages and transitions to more organized healthcare. The per capita number of hospital beds is significantly lower than global averages, and diagnostics test penetration is low. Premchandani has a positive view on healthcare, particularly for companies with a significant share of profits coming from domestic markets.
The automobile sector is also poised for growth, driven by direct tax cuts and proposed GST cuts. Revival in discretionary consumption is expected, and Premchandani has increased exposure in the automobile space, particularly in the passenger vehicle segment. Domestic penetration levels are low, and export opportunities are increasing. He prefers companies focused on gaining value market share without compromising margins.
With a series of measures like income tax and GST rate cuts, Premchandani believes consumption is becoming a no-brainer theme for the next couple of years. Domestic macros have improved, with monetary and fiscal measures to boost consumption. The stimulus started with improved liquidity, followed by timely rate cuts by the RBI, and increased exemption limits on direct tax for individual taxpayers. The announcement of reduced GST slabs for high-ticket discretionary items is also a positive sign.
Consumer discretionary should benefit from the various policy measures over the last 2-3 quarters. Urban consumption has been challenging over the past year due to high inflation and low per capita income growth. However, tax cuts and declining inflation may drive a cyclical recovery in this segment. Premchandani prefers the automobile sector to participate in any potential revival in discretionary consumption.
Lastly, Premchandani backs the Indian IT sector as a contrarian idea for the next 12 months. The sector has shown growth and resilience over multiple technology cycles. It is now facing disruption from AI, which may reduce the overall revenue pie. However, the revenue pie for data analytics and integration of AI agents in clients' IT architecture may compensate for this. Most Indian IT firms have the DNA to navigate tech cycles efficiently. Any sign of growth recovery can drive a rerating. The volatility in the US macro environment due to tariffs has reduced visibility for FY26 growth for IT, but the sector is coming out of a 2-year slowdown with pent-up demand, likely driving mid to high single-digit growth for the next 2 years.
The Indian IT sector is trading at a high free cash flow yield with generous dividend payouts, making it a relatively reasonable contrarian idea.
Frequently Asked Questions
What is the main reason why FII selling isn't the full story for Indian markets?
According to Amit Premchandani, FII selling isn't the full story because valuations, earnings quality, and sectoral opportunities matter more than short-term flows.
Which sectors does Amit Premchandani believe will lead the next leg of market growth?
Premchandani is positive on BFSI, healthcare, and the automobile sector. Large private banks, healthcare companies with a significant share of domestic profits, and automobile companies focused on value market share are particularly attractive.
How does the recent earnings season impact investor sentiment?
The recent earnings season was broadly in line with marginal cuts in earnings estimates, but the quality of earnings was slightly below par, driven by cyclical and commodity-oriented sectors. However, EBITDA margins expanded, and PAT growth was marginally ahead of expectations.
What measures have been taken to boost consumption in India?
Several measures have been taken, including income tax and GST rate cuts, improved liquidity, timely rate cuts by the RBI, and increased exemption limits on direct tax for individual taxpayers.
Why does Amit Premchandani see the IT sector as a contrarian idea?
The IT sector has shown growth and resilience over multiple technology cycles and is now facing disruption from AI. However, the revenue pie for data analytics and AI integration may compensate for this. The sector is trading at a high free cash flow yield with generous dividend payouts, making it a reasonable contrarian idea.
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