S Naren Flags Valuation Concerns as FIIs Shift Focus from Indian Equities to Cheaper Global Markets

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Foreign Institutional Investors (FIIs) are increasingly reallocating capital away from Indian equities, citing stretched valuations and more attractive opportunities abroad. S Naren, CIO of ICICI Prudential AMC, has called Indian stocks an “expensive asset class,” urging investors to moderate return expectations.

Key highlights from Naren’s remarks:

Despite strong domestic flows, FIIs are hesitant due to India’s high pricetoearnings ratios compared to global peers
Naren warns that a significant correction—possibly 20%—may be needed to reset investor expectations
He emphasizes that a 10% return is already 1.5 times India’s riskfree rate, yet many investors undervalue it
FIIs are drawn to undervalued sectors globally, while Indian stocks are pricing in years of growth

Market dynamics and outlook:

Domestic investors remain bullish, but FIIs are shifting to markets with lower valuations and better earnings visibility
Naren identifies “quiet pockets of value” in India, such as oil and gas, retail, and midcap cement stocks
He cautions against overexposure to small and midcap funds, suggesting a more balanced approach
The current market is driven more by liquidity than fundamentals, making it vulnerable to sentiment shifts

As global conditions evolve, FIIs may return once valuations normalize and growth visibility improves. For now, India’s equity premium is both its strength and its stumbling block.

Sources: NDTV Profit, MSN India, Economic Times, Moneycontrol, Upstox, Reuters, ICICI Prudential AMC