Nifty hit by $39 billion FII selloff but why is BlackRock's Ben Powell betting big on India.

Nifty hit by $39 billion FII selloff but why is BlackRock's Ben Powell betting big on India. Even as the Indian equity market is currently grappling with a staggering $39 billion exodus of foreign institutional investor (FII) capital since the beginning of 2025 amid downgrades by a few global brokerages, BlackRock, the world’s largest asset manager, is not just staying put but remains overweight on Indian stocks, arguing valuations have normalised after trading at nosebleed premiums for much of 2024 and early 2025.

"We are structurally overweight on India. We have a high conviction in the medium-term trajectory of the economy driven by the demographic reality that by the end of the decade one in five workers globally will be here in India. The economy would also see efficiency and productivity improvement, driven by a combination of reforms and technology," Ben Powell, Chief Investment Strategist for APAC at BlackRock, said.

India valuations reset creates entry point?

The case for buying rests on a sharp valuation compression. "Valuations have reduced very notably in the last 18 months or so, in particular, versus other emerging markets. Normally, India trades at a fairly significant premium to other emerging market equities because the growth is so strong," Powell said. "If we think about adding real GDP growth, with inflation, you get to 10%. From here, valuation looks much more favorable given the downdraft we've seen in equity prices."

The MSCI India Index is down around 6% year-to-date in 2026, with the March bottom marking a 14% drawdown. The one-year forward price-to-earnings ratio has fallen to 20.2x, close to the 10-year average, from sustained levels above 22x that prevailed through most of 2024 and early 2025.

Why the exodus?

AI fever and energy crisis Powell identified two structural factors driving the foreign selloff — neither of which, he stressed, reflects poorly on India's fundamentals. "Over the last year or so you've had a very significant excitement around artificial intelligence, so the decision that a lot of global investors have made at least for now is that there are other economies which are more exposed to the AI super boom, including Taiwan, Korea and parts of China," he said. "When you are allocating capital you only have a finite amount so you want to allocate it to where you feel like is the best opportunity at any particular moment and over the last year or so AI has been very hot with good reason. The perception is that India is less geared into this than some of the other markets."

The second factor is the Strait of Hormuz closure. "We have the situation in the Middle East. The Strait of Hormuz is closed, this has led to significant increase in energy prices and uncertainty about what is going to happen with energy prices and even energy availability over the next several weeks and months," Powell said. "Europe and Asia are more significant energy importers, so the energy problem is impacting them, including India, a little bit more significantly."

He was emphatic that neither factor undermines India's structural story. "These two factors I think have been explanatory as to why a global investor has been looking to deploy their capital in other geographies but again I want to stress it's not like India has done anything wrong and it doesn’t change the structural bull story."

The next two weeks: Retail fuel price shock loomsPowell's optimism carries a near-term caveat. India has delayed passing through higher energy costs to consumers, and that reckoning is imminent. "We're all kind of waiting for the fuel price increase to come through over the next few days," he said, while referring to the possibility of petrol and diesel prices hikes in India.

The impact could be significant. "When this happens over the next few days, we will need to see the consequences for consumers. They will have less money to spend on other things. It will also affect businesses which consume diesel," Powell said.

Both local and foreign investors are holding back until this plays out. "At the moment both foreigners and locals are a little bit nervous so at the moment the equity market is confronted with a difficult situation. For now, everyone is a little bit conservative," he said.

The resolution of the Middle East crisis, he argued, could flip sentiment quickly. "We are seeing encouraging signs from the Middle East. It seems like they are beginning to negotiate. That would be a much more favorable environment for global markets but in particular for India we're just not quite there yet."

Inflation Shock, Rate Hikes, and the Rupee Question Powell expects central banks globally, including the Reserve Bank of India, to prioritise fighting inflation over supporting growth in the near term. "The stagflationary nature of a supply shock of an oil price shock is very challenging for central bankers all over the world as they try to balance the likely negative implication for growth with the high inflation implication," he said. "Our assessment is the inflation normally shows first right is price go up very clearly and then the growth slowdown maybe happen later so we think that central banks all over the world including here in India will have to take the inflation shock very seriously and this can probably give room for either wait and see i.e do nothing but with a bias probably for hiking being the next move."

Higher rates don't necessarily doom equities. "You think about even global markets over the last five years, interest rates have gone from zero in Covid to 4.25-4.5% and equity markets have been very strong. That’s because earnings growth is so powerful," Powell said.

For foreign investors, the rupee remains a concern. "FIIs are a bit nervous about the currency, so this is the structural current account deficit issue of being such a significant energy importer is always a question for foreigners. You can believe in the domestic equity story, but if you are worried that the rupee will go down too much, then the dollar returns can be less positive," he said.

A base case scenario of crude averaging $80-$85 by the end of FY27 and the rupee nearing 98-100 seemed reasonable to Powell, roughly in line with current market pricing.

Yet even as he waits for the fuel price shock to pass and energy supply to normalise, Powell's medium-term conviction is unshaken.

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