Nifty may recover after two years of underperformance, says Anand Rathi’s Azeez

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Indian equities may be due for a recovery after two years of underperformance, with historical returns and continued domestic institutional buying offering some support, according to Feroze Azeez, joint chief executive officer at Anand Rathi Wealth Ltd.
“Mean reversion is favouring India,” he said. He does not expect a sharp market correction unless both foreign institutional investors (FIIs) and domestic institutional investors (DIIs) turn sellers. While FIIs have been selling for an extended period, DIIs still have substantial cash to deploy, he said. Historically, the Nifty has delivered positive returns in the three years following a two-year period of price stagnation, Azeez added.
Azeez now oversees ₹1.06 lakh crore in assets under management (AUM), up sharply from ₹32,000 crore four and a half years ago.
Edited Excerpts:
With the rupee weakening over the past few years, has currency diversification become a bigger consideration for HNIs and NRIs?
Yes, the rupee's recent depreciation has naturally brought currency diversification into the conversation, particularly for HNIs and NRIs. The rupee has historically depreciated by around 3-4% annually, while in recent years the pace has been closer to 5-6%, so some mean reversion can be expected. But currency movement needs to be seen alongside investment returns. Indian equities have more than compensated for rupee weakness over the longer term, making India one of the more rewarding investment destinations on a real-returns basis. With the Indian economy still expected to grow at around 6.4% in FY27, corporate earnings and financial assets have continued to compound in rupee terms.
Currency diversification makes the most sense when there is a specific future requirement in that currency. For example, if someone has a goal such as foreign education, overseas travel or any other expense in Australian dollars, US dollars or another foreign currency, then matching part of the investment to that currency makes sense. Otherwise, currency diversification simply for the sake of diversification may not be necessary. It should not come at the cost of reducing exposure to India's long-term growth story.
What is happening with HNI flows?
SIP inflows have remained very strong, staying in the ₹30,000 to ₹32,000 crore range, which shows that retail participation continues to remain healthy. On the lump-sum side, the flows have been more subdued, and based on the flow pattern, HNI participation in equities appears to have moderated in some months, including May and July. But HNIs have a lot more options today and there is a lot of distraction in this category. There is a growing push towards AIFs, PMS and other specialised products, often with the pitch that, “I will do it cheap. I will take a small advisory fee in future.” So, some of the incremental HNI money is moving towards these products, while mutual funds continue to see strong participation from the SIP segment.
On the lump-sum side, the flows have been more subdued, and based on the flow pattern, HNI participation in equities appears to have moderated in some months, including May and July. But HNIs have a lot more options today and there is a lot of competition for their attention in this category.
Where are HNIs actually looking for alpha when it comes to Indian equities - large caps or the broader market?
HNIs have always chosen the broader market more when performance has been good, especially through AIFs, where they think they can buy smaller stocks than in the mutual fund market. If you have patience for four or five years, you can beat the Nifty 50 or anything benchmarking itself to the Nifty by 2-3%. But I don't believe in buying it through an AIF, not at all, because there are quite a few disadvantages. The tax is a full-level problem. In a Category III AIF, the tax on the gains is accounted for in the fund itself and is reflected in the NAV. So, an investor exiting the fund can end up bearing the tax liability on gains made during their investment period. That is an important disadvantage and needs to be understood before looking at AIFs purely for alpha.
Are HNIs becoming more tactical with Indian equities?
No. The confidence to allocate money in India and leave it there is far higher. If confidence goes up, that market becomes a strategic allocation, not a tactical allocation. Volatility in Indian markets has come down significantly. Over the last 26 years, there have been only four to five years when the Nifty had lower standard deviation than the S&P 500. Nifty 50 volatility was 11.72% in 2025 compared with 18.65% for the S&P 500, while in calendar years 2022 and 2023 also, Nifty volatility was lower than the S&P 500. This gives HNIs greater confidence to hold Indian equities through market cycles, rather than treating them as a short term tactical allocation.
What is the attraction towards fixed income and private credit?
Fixed income are investments such as bonds and G-Sec that provide a relatively predictable return, while private credit involves lending directly to businesses or individuals which is usually at a higher interest rate than traditional fixed income. Fixed income is gradually losing some of its sheen in the wealth management industry because of the unfavourable tax treatment for HNIs. Private credit, on the other hand, has gained attention because it offers higher yields. But the higher yield comes with higher credit risk, and that defeats the purpose if fixed income is meant to provide stability to the portfolio. The purpose of a shock absorber is to absorb shocks, not to make the car go faster. The engine should be equity or real estate; fixed income should play a different role.
A 13-14% return in private credit may look attractive, but the first question should be why the borrower is willing to pay that much. If banks and other traditional lenders were comfortable lending at a lower rate, the borrower would not need to approach a private lender at 13-14%. That additional return is compensation for taking additional risk.
How do you see India within the broader emerging-market and global investment basket?
Mean reversion is favouring India. After being among the worst performers for two years, mean reversion can work in its favour. The Nifty’s mean return is 14% and median return is 11%, while the probability of the Nifty delivering more than its median return over three years is about 80%. The key question for investors is whether they can benefit from this mean reversion and deliver 14 to 15% returns with lower risk.
The other question is whether there is a catastrophe in the making. For markets to fall substantially, both FIIs and DIIs need to be on the selling side. FIIs have been selling for long, but DIIs still have a large cash pile, so they are unlikely to become sellers easily. Historically, after a two-year time correction in the Nifty, the next three years have always been positive.
There is also a fundamental reason to remain constructive. Over the last 10 years, earnings have grown faster than prices. Nifty 50 companies’ cumulative profit has risen from around ₹3 lakh crore in 2016 to around ₹9 lakh crore now, implying a 12.9% compounded growth, while prices have grown 9.3%. When earnings outpace price growth for a long period, sustained market underperformance becomes very unlikely.

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