We are currently in an environment where risk appetite to EM overall is strong. This typically means that foreign investors prefer high-beta markets over longer-term growth markets such as India. This could explain why foreign flows to India have been a bit soft recently.
The main foreign worries over the Indian market are the relatively high valuation levels, the still mediocre corporate investment growth and, linked to this, the balance-sheet problems in the state-owned banks.
Are foreign investor flows into Indian equities likely to slow further? No, not necessarily. In this good EM environment (with less worries about Fed and ECB policy normalisation, good global trade growth and benign data from China), India will also get its fair share of flows. Besides, India remains one of the better medium-to-long-term growth stories in EM, which should mean that higher valuations vis-à-vis GEMS are sustainable.
Do you see a sharp correction in Indian markets in the near to medium term? No, I do not expect that.