Goldman Sachs reports that foreign portfolio managers continue to maintain an underweight position on Indian markets, despite modest increases in allocations over the past quarter. This cautious stance persists even as India sees the highest exposure increase among emerging markets.

Underweight Position Persists

According to the Goldman Sachs report, India remains underweight by 280 basis points compared to benchmark allocations. This underexposure is particularly notable in active mutual funds, where allocation is at a two-decade low.

Allocation Breakdown

Factors Influencing Cautious Sentiment

The hesitant approach of foreign portfolio managers can be attributed to several factors:

1. Concerns over US-India trade relations
2. Uncertainty about corporate earnings growth

Positive Economic Indicators

Despite the cautious sentiment from global funds, India's economy shows signs of strength:

• GDP growth: 7.90%, exceeding expectations
• Monetary policy: The Reserve Bank of India has cut interest rates by 100 basis points since Sanjay Malhotra's appointment as RBI Governor

The contrast between the robust economic indicators and the underweight position of global funds highlights the complex dynamics at play in India's financial markets. As the situation evolves, it remains to be seen how foreign portfolio managers will adjust their allocations in response to India's economic performance and global market conditions.

India is ramping up its efforts to diversify and expand its trade relationships, with a particular focus on Australia, Qatar, and Bahrain. This strategic move comes as the country faces increased tariffs from the United States, pushing it to seek new markets and strengthen existing partnerships.

Cabinet to Review Export Promotion Mission

The Indian government is set to present an export promotion mission proposal to the cabinet, signaling a renewed focus on boosting the country's export capabilities. This initiative is part of a broader strategy to reduce India's dependence on the US market and explore new avenues for trade growth.

Accelerating Trade Ties with Australia

India is currently in talks with Australia to fast-track the expansion of their Economic Cooperation and Trade Agreement (ECTA). The enhanced agreement aims to create more opportunities for Indian skilled workers and increase infrastructure exports to Australia. This move could potentially open up new sectors and facilitate greater economic cooperation between the two nations.

Middle East Opportunities: Qatar and Bahrain

In a significant development, both Qatar and Bahrain have expressed interest in negotiating free trade agreements with India. These potential agreements could pave the way for increased trade flows and economic collaboration with the Gulf nations, further diversifying India's export markets.

US Tariff Challenges

The push for new trade partnerships comes against the backdrop of rising tariffs imposed by the United States on Indian imports. New US tariffs have reached up to 50% on various goods, including:

• Garments
• Gems
• Furniture
• Chemicals

Adding to the existing 25% tariffs on these items, the US has imposed an additional 25% penalty related to India's Russian oil purchases. This development has likely accelerated India's efforts to reduce its reliance on the US market and seek alternative trade partners.

Strategic Implications

India's proactive approach in expanding its trade relationships reflects a strategic shift in its economic policy. By diversifying its export markets and strengthening ties with countries like Australia, Qatar, and Bahrain, India aims to:

1. Mitigate the impact of US tariff hikes
2. Reduce dependency on a single market
3. Create new opportunities for Indian businesses and workers
4. Enhance its position in global trade

As these trade initiatives unfold, they are likely to reshape India's economic landscape and potentially influence its geopolitical relationships in the coming years.