Swiss brokerage UBS said on Tuesday that Global investors are cautious on India because of expensive valuations, but intrigued by domestic households buying stocks, The investors are also questioning the near-term sustainability of the bets being taken by the retail investors, it said in a report.  the net outflows by foreign institutional investors (FIIs) are indicative of the same views, it added.

 It said in the ongoing September quarter, FIIs have so far pulled out USD 1.1 billion on a net basis as against inflows of USD 0.8 billion and USD 7.3 billion in the preceding two quarters. Even as the FIIs are pulling out money, households have been "investing heavily" in the market and net purchased USD 5 billion in equities in the June 2021 quarter. Retail direct ownership is at a 12-year high, UBS noted. Flows from domestic mutual funds have also turned positive after four quarters, and risk of a COVID-19 third wave, ramp-up in vaccinations and earnings momentum are keys to market sentiment, it said.

There is little room for re-rating given the expensive valuations, it said, adding that if low absolute returns continue, that could lead to fatigue in retail flows -- especially as bank deposit rates probably have bottomed out. The brokerage further said it expects India's GDP to grow by a below-consensus 8.9 percent in FY22.

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