FIIs still cautious, but India’s market story remains intact: Mark Matthews

The Indian markets have been buzzing with activity following the government’s sweeping GST reforms, which many see as a major boost for consumption-driven growth. Strong GDP numbers have further underlined the country’s macroeconomic resilience. Yet, despite the optimism, one concern looms large—foreign institutional investors (FIIs) are still not showing meaningful interest.

ET Now, in conversation with Mark Matthews, sought to understand the evolving investor sentiment around India.

“I am not really the right person to ask about FIIs. I know I look like one, but I am only one of thousands. So, I like India…” said Matthews, stressing his personal optimism about the country.

He highlighted that India remains a unique investment destination. “Well, there is a lot to be interested in India. It is a very large and liquid market, which most emerging markets are not. So, you can easily get in and out, and it is a very large and uncorrelated economy to the American economy. So, to my mind, it is a natural place to invest for a global portfolio. And to answer your question, I do not really know why the FIIs are not buying it. One thing that pops into my mind is that there is a resurgence of interest in China, and really, those are only two big emerging markets in the world are China and India. So, there is an alternative now which there really was not from around 2019 till last year because most portfolio managers viewed China as uninvestable, as the infamous saying went and now they are changing their mind on that. So, I suppose that one thing that pops in my mind is that China is taking up a lot of the bandwidth that is occupied by the emerging markets.”

When asked if China’s momentum was merely tactical, Matthews pointed out that the situation has evolved. “Yes, they have been calling it tactical for over a year now. I must confess that when we began to like China in late 2023, we called it a tactical opportunity. But the more the Chinese market goes up, the more that it looks more structural, doesn't it? It is still very far from its previous highs. It is not expensive. It has an enormous technology ecosystem that nowhere else in the world has, apart from the United States, and it appears that China and American relations are mending. So, you put all that together, you are right to say it is probably more than tactical now.”

On India’s domestic growth drivers, Matthews emphasised consumption as a key theme. “One of the go-tos should be consumption. I do believe that it was the case before the adjustment in the GST bucket and the cut in income tax, and certainly even more the case now. I think that the economy was soft last year, partly self-induced through the Reserve Bank keeping rates high and reserve requirement ratios for banks high, and the government spending less on capex. But we know that government capex on infrastructure is going to go up this year. We know that interest rates have been cut, that reserve ratios have been cut in the banks, and to top it off, now we have got these changes in taxes. To my mind, yes, the consumer is a natural beneficiary of all those things.”

He also reiterated his long-standing confidence in Indian financials. “Yes, they are a good proxy for the economy as a whole, not just consumption but I like to say that banks are the heart of any economy and so when the economy is doing well the heart is doing well and I believe that India's economy will do better in the next year or so in part because if you look back in history whenever there have been problems for India starting really with the balance of payments crisis, when was that, over 30 years ago, 34 years ago, and then it seems once every 10 years there is sort of something that happens. So, in the early 2000s and the early 2010s, the net effect was that the government became even more liberalised and more pro-business, more pro-market. I think we are seeing that play out exactly today. So, as much as the tariff news is not good, the net effect of it will be positive.”

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While FIIs may still be sitting on the sidelines, Matthews’ perspective underlines that India’s long-term fundamentals—consumption growth, financial sector strength, and government reforms—remain firmly in place.