Volatility in the Indian rupee is fueling negative sentiment in Indian equities, despite some optimism stemming from trade negotiations with the UK and European Union, Helios Capital founder Samir Arora told Moneycontrol in an exclusive interview with N Mahalakshmi.
Arora highlighted that sharp currency swings are creating psychological stress among investors. “When the rupee weakens sharply on days when global currencies are strengthening against the dollar, it fuels perceptions that something is fundamentally wrong, which adversely impacts equity markets,” he explained.
While some currency depreciation may be driven by policy measures aimed at boosting exports, Arora cautioned that the rapid pace of recent movements has unsettled investors. “If depreciation is necessary, it should happen gradually. Sudden moves erode confidence and increase market nervousness,” he said.
Global Capital Flows Away from India
Arora pointed out that the primary reason for foreign institutional investor (FII) selling is the strong performance of overseas markets, particularly in technology sectors. “Global markets are doing well, so investors currently lack a compelling reason to rotate capital back into India,” he stated.
However, he added that such divergence is usually temporary. “It’s very unusual for India to underperform while the rest of the world rises. Over time, valuations will adjust or earnings will catch up,” he noted.
India’s Small Share in Global Portfolios Limits Persistent Selling
Regarding the sustainability of foreign selling, Arora said it is structurally unsound because India constitutes only a small fraction of global and emerging market allocations. “India is just a tiny part of global portfolios. It’s illogical that India keeps getting sold daily to fund rallies elsewhere,” he explained.
He emphasized that within emerging markets, it’s unrealistic to expect India to continuously supply capital to outperforming regions like Korea or Taiwan. “When most global markets are doing well, it’s unlikely that the remaining markets will keep acting as the source of funds. Eventually, performance gaps narrow, and rebalancing flows tend to return,” he added.
Arora noted that such reversals often occur with minimal triggers. “Sometimes, just one or two small catalysts can trigger inflows because investor positioning becomes highly skewed,” he said.
Trade Negotiations Boost Sentiment, But Stock Picks Need Caution
While recent positive developments in India’s trade talks with the EU and UK have improved market sentiment, Arora advised caution against using macro headlines as direct triggers for stock selection. “These are broad developments that support economic stability and export diversification, but you shouldn’t buy stocks solely based on trade headlines. Actual implementation takes time,” he emphasized.
He observed that global buyers are increasingly sourcing from India despite tariff uncertainties, driven by a strategic shift to diversify supply chains away from China. “Even with tariffs, large retailers continue placing orders from India because this shift is structural,” he said.
Market Correction Eases Downside Risks; Budget Outlook Remains Cautious
Arora stated that the recent market correction has reduced the likelihood of further significant declines unless unexpected policy shocks occur. He warned that any indications of higher capital gains tax in the upcoming Budget could dampen investor confidence. “Equity flows are vital for capital formation and private investments. Signal of increased taxation would hurt sentiment,” he remarked.
Focus on Structural Growth Sectors: Quick Commerce and Fintech
Despite short-term volatility, Arora’s firm remains focused on sectors with strong long-term growth prospects. “Our top ideas currently are quick commerce and digital payments or fintech platforms. These sectors are rapidly scaling, enjoy high user adoption, and are well-positioned for the future,” he said.
He added that while portfolios encompass multiple themes, these sectors remain among Helios Capital’s highest-conviction positions for long-term investors.