Indian equities have entered correction territory on sustained selling by overseas investors and slowing earnings. Yet, valuations remain stretched relative to trends. External factors such as China's stimulus and US moderating rate cuts have been sold into. Subdued corporate earnings, too, are likely to be a shallow dive. Policymakers don't expect significant deviation from projected GDP growth. RBI is yet to embark on its rate-cutting cycle. Corporate earnings should be back on trend within a couple of quarters and the markets back in calm water. The de-rating of Indian stocks will have served to ground valuations after an extended rally. This should temper expectations of returns in the medium term.


India offers some safe haven benefit in the evolving global economic order. Its low exposure to the US and China consumer markets, conservative exchange rate management and rising retail appetite for equities should help it ride out fresh turbulence from protectionist US trade policy. China is yet to unveil its fiscal stimulus as it enters a tariff war with the US. India would also gain from any change in US emphasis on 'China-plus one' global supply chains. This could lead to a reversal of the sell-India, buy-China play. Domestic institutions were sitting on a lot of cash as foreign investors started selling, and their purchases have averted a deeper correction.

The rupee has a weak correlation to currencies of Asia's export-oriented economies. This makes it relatively stable as global trade tension mounts. The rupee will be under pressure, but its movement is likely to be steady. This improves India's prospects of attracting debt flows headed towards emerging markets. The recent pullout from local debt markets ought to reverse with inflation on course to target and RBI lowering interest rates in the new year. Subdued energy prices emerging from higher US oil production should make it easier for RBI to normalise interest rates.