FIIs warming up to India's bottom-up story, crude remains top worry: UBS India's Chhaochharia

Foreign institutional investors (FIIs) are growing more comfortable backing individual, bottom-up stock ideas in India, even as crude oil prices remain their biggest source of anxiety about the market, according to Gautam Chhaochharia, Head of Global Markets at UBS India.

Speaking from the sidelines of the UBS investment conference, Chhaochharia said foreign participation at this year's event was noticeably higher than last year. He said clients have been very reassured by what they saw over the last few months about India's resilient macro and earnings, even as they continue to track how the West Asia situation affects oil prices and, in turn, India's economy.

That reassurance, however, hasn't yet translated into large capital inflows. "Not yet a level where foreigners are willing to jump in and deploy large capital, but definitely looking for bottom-up ideas," Chhaochharia said.

On where that interest is concentrated, he noted that smaller companies at the conference had drawn strong investor attention, with meeting schedules filling up.

Financials remain a core area of engagement, partly because investors are reviewing existing holdings and partly due to a pickup in credit growth. But he flagged a shift at the margin: investors are now engaging more with the broader industrials, metals, and utilities space than they have historically, alongside longstanding interest in areas like quick commerce.

Frustration among foreign investors over India's underperformance relative to regional peers has eased compared to six months to a year ago, Chhaochharia said. "I think they kind of have rationalised or very well understand what was happening both in terms of relative growth, valuations, and now things are changing at the margin," he said, adding that longer-term investors remain patient because the underlying growth drivers are still intact.

Crude oil continues to dominate investor concerns about India specifically. "That's top of the mind. That's the one big worry on their mind, more so in the Indian context than in other markets," Chhaochharia said, noting the topic has come up repeatedly in recent investor conversations.

On the artificial intelligence (AI) trade, he said worries that India lacks a direct AI beneficiary have softened. Investors are instead looking at ancillary plays such as power, supply chains, and companies positioned to adopt AI. Extreme negative views on the IT services sector have also faded, though debate continues over the sector's growth outlook three years out.

Asked which sector he would recommend to clients today, Chhaochharia pointed to two: financials, calling them the bellwether of markets as well as the credit cycle uptick, and the broader industrials and manufacturing landscape, which he expects to keep growing and occasionally beat high growth expectations.

For investors looking beyond the consensus trades, he named power and metals as potential dark horses, with UBS's analysts also flagging consumer staples as worth watching.

For the full interview, watch the accompanying video

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