Ahead of Budget 2026: Why US investors do not see Indian stocks as compelling buy
Emkay Global said the skepticism around earnings recovery stems from periodic failures of a turnaround in FY25 and FY26, given continued downgrades to the consensus’s earnings estimates.
- Jan 29, 2026,
- Updated Jan 29, 2026 4:48 PM IST
Ahead of Union Budget 2026 on February 1, Emkay Global met US investors across long-only and hedge funds, who it said are cautious and showed scepticism around earnings recovery in India. They were in ‘we will believe it when we see it’ mode, the domestic brokerage said while adding that US investors are not jumping into Indian equities despite the recent underperformance.
Emkay Global said the key questions it faced by US investors included trigger for a rupee turnaround; capex allocation in the upcoming Budget; and risks from rising Loan-to-Deposit Ratio (LDR).
"The rupee remains the over-arching worry, and most clients will remain cautious until there are clear signs of a reversal and probably when the India-US trade deal is signed," Emkay Global said.
Emkay Global said the rising skepticism around earnings recovery stems from periodic failures of a turnaround in FY25 and FY26, given continued downgrades to the consensus’s earnings estimates.
"Large sectors like IT, Staples, and BFSI are seeing structurally slower growth, which raises worries that the optimistic forecasts for FY27 remain at risk. Investors are in wait-and-watch mode and are more likely to take the earnings acceleration on board when visibility improves," it said.
On Budget 2026, Emkay said the lack of fiscal headroom may limit capex spends in the upcoming Union Budget for FY27. Its base case is a target of 7 per cent YoY capex growth. There could be a positive surprise of up to 10 per cent YoY growth if the government either relaxes the fiscal target or steps up non-tax revenue through asset monetization and privatisation, it said.
Emkay Global said US investors recognise India’s long-term growth potential, and the rich valuation multiple, by itself, does not appear as a binding concern. The key roadblock is that earnings growth has not been supportive and the valuations, in that context, come into focus.
Key sectors of interest were Mid-cap Financials, Industrials, and Discretionary, while Technology sees increasing apathy. Investors also recognize the alpha potential in SMIDs; the high volatility and potential downside risk remain worrying – the preferred approach is to be highly selective, with a strict filter on valuations.
Emkay said the consensus’s forecasts point to a 14 per cent YoY earnings per share growth for the Nifty 50 in FY27, after 3 per cent in FY25 and a likely 7 per cent in FY26.
"India still does not stand out as a compelling buy versus global peers, despite the strong relative underperformance in 2025. FPIs have largely stayed away from India, with net outflows of USD18.9bn in 2025, while other markets like Korea, China, and the US saw strong flows. The key worries about India are: i) sluggish earnings growth with repeated rounds of estimate downgrades; ii) the market being left out of the AI theme; and iii) high valuations, even though justified, being a constraint on relative upside potential," it said.
Emkay said rupee weakness, down 7.5 per cent against dollar since US tariffs on April 4, remained a key worry for most investors, especially with the dollar index falling 6.5 per cent over the same period.
"Investors are wary of buying into India until the currency pressure abates. Many questions focused on the key catalysts for a turnaround in the INR/USD. Many investors also seemed to see the completion of the India–US trade deal as a key catalyst for turning positive again," it said.
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Ahead of Union Budget 2026 on February 1, Emkay Global met US investors across long-only and hedge funds, who it said are cautious and showed scepticism around earnings recovery in India. They were in ‘we will believe it when we see it’ mode, the domestic brokerage said while adding that US investors are not jumping into Indian equities despite the recent underperformance.
Emkay Global said the key questions it faced by US investors included trigger for a rupee turnaround; capex allocation in the upcoming Budget; and risks from rising Loan-to-Deposit Ratio (LDR).
"The rupee remains the over-arching worry, and most clients will remain cautious until there are clear signs of a reversal and probably when the India-US trade deal is signed," Emkay Global said.
Emkay Global said the rising skepticism around earnings recovery stems from periodic failures of a turnaround in FY25 and FY26, given continued downgrades to the consensus’s earnings estimates.
"Large sectors like IT, Staples, and BFSI are seeing structurally slower growth, which raises worries that the optimistic forecasts for FY27 remain at risk. Investors are in wait-and-watch mode and are more likely to take the earnings acceleration on board when visibility improves," it said.
On Budget 2026, Emkay said the lack of fiscal headroom may limit capex spends in the upcoming Union Budget for FY27. Its base case is a target of 7 per cent YoY capex growth. There could be a positive surprise of up to 10 per cent YoY growth if the government either relaxes the fiscal target or steps up non-tax revenue through asset monetization and privatisation, it said.
Emkay Global said US investors recognise India’s long-term growth potential, and the rich valuation multiple, by itself, does not appear as a binding concern. The key roadblock is that earnings growth has not been supportive and the valuations, in that context, come into focus.
Key sectors of interest were Mid-cap Financials, Industrials, and Discretionary, while Technology sees increasing apathy. Investors also recognize the alpha potential in SMIDs; the high volatility and potential downside risk remain worrying – the preferred approach is to be highly selective, with a strict filter on valuations.
Emkay said the consensus’s forecasts point to a 14 per cent YoY earnings per share growth for the Nifty 50 in FY27, after 3 per cent in FY25 and a likely 7 per cent in FY26.
"India still does not stand out as a compelling buy versus global peers, despite the strong relative underperformance in 2025. FPIs have largely stayed away from India, with net outflows of USD18.9bn in 2025, while other markets like Korea, China, and the US saw strong flows. The key worries about India are: i) sluggish earnings growth with repeated rounds of estimate downgrades; ii) the market being left out of the AI theme; and iii) high valuations, even though justified, being a constraint on relative upside potential," it said.
Emkay said rupee weakness, down 7.5 per cent against dollar since US tariffs on April 4, remained a key worry for most investors, especially with the dollar index falling 6.5 per cent over the same period.
"Investors are wary of buying into India until the currency pressure abates. Many questions focused on the key catalysts for a turnaround in the INR/USD. Many investors also seemed to see the completion of the India–US trade deal as a key catalyst for turning positive again," it said.
Track live Budget updates, breaking news, expert opinions and in-depth analysis only on BusinessToday.in