India has been in a sustained risk-off phase since late 2024, which intensified in March amid rising geopolitical tensions and oil-price volatility. Sentiment softened as the expected duration of the conflict became less clear, raising concerns about domestic growth and potential earnings downgrades as crude moved above $100. FII outflows, profit booking by retail investors, and a moderation in DII buying together amplified the decline in . FIIs have sold about $16.5 bn over the past 12 months in India, of which $11.5 bn is in this month, among the highest across emerging markets.
A key driver of the selling has been India’s premium . As a result, market valuations have corrected toward the lower end of their five-year range after historically trading at a premium supported by strong macro fundamentals and robust domestic participation. The Nifty 50 is down 13.5% from its 52-week high. This correction puts the market in a more favourable position for a rebound, assuming the geopolitical conflict remains short-lived.
Several rated stocks and sectors have seen sharp declines in both prices and valuations, creating selective opportunities. For example, sector indices such as Realty, Media, IT, FMCG, and Auto are down 36%, 29%, 26%, 20%, and 16%, respectively.
Valuations are high despite the correction
Despite the correction, uncertainty remains elevated given limited signals of a near-term resolution, leaving room for further consolidation. On longer-term valuation metrics (for example, Nifty forward P/E versus its own 15-year average), India does not yet screen compelling enough to justify a broad rerating. The Nifty 50 currently trades at a one-year forward P/E of 17.7x versus a 15-year average of 17.0x (a modest premium). If the persists or escalates and keeps oil and gas prices higher for longer, the risk of earnings downgrades could rise, putting renewed pressure on valuations that may not yet be fully reflected in current EPS expectations.
Looking ahead to the next ~10 days, outcomes from West Asia peace talks and India’s relative positioning within emerging markets will be important for FII sentiment. India’s valuation in US-dollar terms has eased from ~21–22x to ~19x over the past year, but it remains elevated versus its own history. The valuation premium has contracted from ~100% to ~60–65%, which is close to the long-term average—suggesting flows could stabilise gradually.
Even so, India remains on the FII sell list alongside other emerging markets; while selling has moderated week-on-week, it is too early to conclude that the trend has turned positive.
Historically, geopolitical conflicts tend to increase volatility and weigh on near-term equity performance, but they can also create attractive entry points for long-term investors. A similar pattern is plausible this time: ongoing FII selling and softer domestic inflows (both and retail) could improve prospective entry levels, although near-term downside risks remain. Extending the peace-talk window from five days to ten days keeps hopes of resolution alive but also prolongs uncertainty and the risk of further earnings pressure in the near term.
(Vinod Nair is Head of Research, Geojit Investments)
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