“Trend reversal has happened.” That is how Rajat Rajgarhia, Managing Director and CEO at Motilal Oswal Institutional Equities, summed up his view on foreign investor flows after clarity emerged on India–US tariffs.

He believes the recent trade breakthrough could help change the direction of foreign portfolio investment after a long stretch of selling. According to him, overseas investors pulled out roughly $35 billion over the past 15 months, but sentiment may now be turning. “Let the good news sink in,” he said, pointing out that India-focused funds have already begun seeing inflows even before broader global flows improve.

India and the United States finalised a trade agreement on February 2, lowering tariffs on Indian exports to 18% from earlier higher levels of 50%.
Rajgarhia also sees the impact spreading beyond just export-oriented companies. He expects lenders and financials to benefit indirectly, while several large and mid-cap stocks that corrected sharply could also see renewed interest. In his view, if flows continue and reforms stay on track, markets may finally move out of the range they have been stuck in for over a year.

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But not everyone is convinced that foreign money will make a big difference.

“I don’t think there is any durable, meaningful impact on the upside, either. But it’s a very good thing to happen,” said Prashant Jain, Founder and Chief Investment Officer at 3P Investment Managers, agreeing that the deal helps sentiment, but downplaying the market impact of foreign flows.

“Foreigners have sold 40 billion in 18 months, but markets large caps have been flat.” That, he argued, shows how much the structure of Indian markets has changed.

According to Jain, foreign investors stayed underweight on India for three main reasons. First, valuations had become expensive about 18 months ago, which made the market less attractive compared to peers. Second, earnings expectations were too optimistic, as investors were extrapolating the sharp post-Covid recovery rather than looking at a more normal growth path. And third, India was missing the big global investment themes such as artificial intelligence and semiconductors, which drew capital toward other markets.

He also explained that when sentiment improves, companies tend to raise more capital, which increases supply and balances out extra demand from overseas investors. “Ultimately, markets will, over time, move depending on valuations and fundamentals. I think the impact of flows is not that significant,” he said.

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For the full interview, watch the accompanying video

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