'Long-term investors looking at India with great interest'

Markets have had a few volatile weeks with investors dumping mid and smallcap stocks amid concerns raised by regulators. PRAMOD GUBBI, co-founder of Marcellus Investment Managers, told Puneet Wadhwa in a conversation in Mumbai that given the macroeconomic strengths, the market is pricing in a reasonable earnings growth and hence justifying current valuations. Edited excerpts:

- Puneet Wadhwa

Do you think foreign flows into Indian equities will thin in the remaining part of 2024 as China and Japan become more lucrative options?

While we look at foreign money as a block, foreign portfolio investors (FPIs) come in various shapes and forms-with different mandates and time horizons. At one extreme would be the hot money, which is largely driven by rates. However, the surprising strength of the US economy and lingering supply-side risks to inflation have meant that rate cuts are less imminent than was thought to be; hence we are seeing a bit of a pullback or slowdown. So, developments in the rate cycle will determine these flows.

At the [other] extreme are the patient long-term capital/investors who are looking at India with great interest due to a combination of absolute and relative factors. The revival of India's macroeconomic fortunes and relative disappointment with China will likely be a positive driver over the medium term. The only hurdle for the long-term capital has been valuations. So, a market pullback might actually trigger these flows.