FY25 as weak-earnings year is gradually getting priced in

Even as many blame record foreign portfolio outflows for the market downturn, the real culprit is weak earnings amid rich valuations, says GAUTAM CHHAOCHHARIA, head of global markets, India, UBS. In an interview with Samie Modak in Mumbai ahead of the UBS India Summit, Chhaochharia highlights that 2024-25 (FY25) weak earnings growth is now factoring into market expectations. Investors are shifting their focus to the actions of the Reserve Bank of India (RBI) and the central government, as well as the outcome of upcoming state elections. Edited excerpts:

- GAUTAM CHHAOCHHARIA

Indian markets have come off sharply from their highs in September. What has triggered this fall?

Many in the market mention record foreign portfolio outflows. Let's not look at these numbers only in absolute terms. In terms of percentage of market capitalization or percentage of holdings, the selloff isn't off the charts. The key, in our view, has been weak earnings in the context of rich valuations. Markets were expecting a weak second-quarter (Q2) earnings season, but the actual numbers were worse than these already low expectations.

Will foreign portfolio investor (FPI) selling continue? What will it take for foreign outflows to stem the tide?