Financial experts said Indian corporations must deliver sustained growth to encourage foreign portfolio investors to return to the country's equity markets.

This shift is critical because foreign capital flows are sensitive to corporate earnings and macroeconomic stability. If Indian firms cannot demonstrate consistent growth, global funds may continue to pivot toward other markets, including the U.S., reducing the liquidity and valuation support typically provided by international investors.

Neeraj Seth, founder and CIO of 3R Investment Management, and Mitul Kotecha, head of FX and EM macro strategy Asia at Barclays, said these requirements during an interview on CNBC TV18. The analysts said that while certain macroeconomic indicators are shifting, the fundamental driver for foreign investment remains the ability of companies to grow their bottom lines over the long term.

Macroeconomic headwinds have previously complicated the investment landscape, though some pressures are easing. For instance, crude oil prices fell below $100 per barrel for the first time in May [1]. Such a dip in energy costs generally benefits India's trade balance and reduces inflationary pressure on the economy.

However, the experts said that oil prices and rupee volatility are only part of the equation. While a favorable currency environment and lower energy costs create a supportive backdrop, they do not replace the need for corporate excellence. Foreign investors are looking for evidence that the current valuation of Indian equities is supported by actual earnings growth, rather than just speculative momentum.

The discussion highlighted a transition in how the market is viewed. The appeal of the Indian market has faced challenges as some firms and funds shift their focus toward U.S. assets. To reverse this trend, the analysts said that the narrative must shift from short-term recovery to a trajectory of sustained corporate expansion.

“Indian corporations must deliver sustained growth to encourage foreign portfolio investors to return”

The insistence on sustained corporate growth suggests that foreign investors are moving away from 'beta' plays—where they bet on the general growth of the Indian economy—and toward 'alpha' plays, requiring specific company performance. With oil prices showing volatility and the US market offering competitive returns, the threshold for what constitutes an attractive risk-reward ratio in India has risen.