On foreign investors been going slow on flows into India : Concerns over rising rates in the US and a potential tapering of the European Central Bank's loose monetary policy have led to a slowdown of flows to all emerging markets, not just India. This should prove transitory as inflation remains subdued in most places, and interest rates will rise slowly and moderately.
Key factors worrying FPIs: Specific to India, valuations are no longer cheap, though earnings are keeping up a good rate of growth. This supports a "buy and hold" approach to this market. The pace and sequence of structural reforms is another driver as it impacts the country's medium-term growth outlook. On the third front, there are economic costs in the short term with dividends only in the long term. Markets are often moved by short-term factors.
Are FPI flows into Indian equities likely to slow further? I think international flows into India are likely to stabilise in the second half of this year as markets absorb the rising US interest rate environment.
Sharp correction in Indian markets: Corrections are inevitable in the medium term. They can be caused by external or domestic drivers. The magnitude is impossible to predict, but I don't see a major correction as a base case scenario from either internal or external sources. If it were to occur, it would be seen as a buying opportunity. The India investment theme is still early in its multiyear cycle.