If the earnings don't come through, markets will struggle: Paul Wilson

India's valuations today are lower compared to what they were two years ago, but earnings have disappointed, limiting the scope for a re-rating, said Paul Wilson, chief investment officer at South Africa's Sanlam Multi Manager International, which manages a total AUM of around $33 billion. In an interview, Wilson shares his outlook for the rupee, foreign flows and investment opportunities, among others. Edited excerpts:

Do you see the foreign investor purchases of Indian stocks in July after a gap as the beginning of a more durable return of global capital to India?
I would be cautious to say that's the start of a major turn. Everything is a comparison. India trades at 19-20 times forward earnings versus 12-13 for emerging markets, implying a 50-60% premium. From a 10-year story, India is a very strong place. But tactically, pricing is easier elsewhere.


So, at what valuations would India start looking good?
Since India is still trading at a premium to the rest of emerging markets, the question investors must ask is, is that a fair premium? Indian stocks should trade at a premium because the fundamentals are much better and there is more visibility than in China. The PE (price-to-earnings) of the market has come down, so it's better than it was two years ago. But earnings have disappointed, coming in 9% lower than expected, and over the last 12 months have been between 6-8%. Expectations are 12-16%, but if earnings don't come through, markets are going to struggle. I think India is fairly valued, but I wouldn't expect a re-rating.

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How will the rise in long-term US Treasury yields above the 5% mark alter the global investment landscape, particularly for emerging markets like India?
The US Treasury note is generally considered the risk-free asset globally, and when markets crash, money flows towards the US. If the risk-free rate gets higher, you have to generate more returns from other assets to justify it. At some point, getting 5.5- 6% on a US Treasury becomes too attractive, especially with geopolitical uncertainty.That makes policymaking difficult and impacts economies like India. Despite that, we are optimistic on India long term, but short term is more opaque.

Within EMs, which are your most preferred markets?
Over the past 12 to 18 months, South Korea and Taiwan have been the place to be. We think that's changing because AI manufacturers will face challenges like access to raw materials and energy. AI requires a lot of energy, so energy and resource sectors will do quite well over the next decade. Countries with resources like rare earths and energy will benefit, many in emerging markets. We like emerging markets over developed markets. We wouldn't underweight AI, but valuations are high. We prefer lesser-loved sectors like resources and financials, where earnings remain strong and valuations are much lower.

Within India, which sectors or investment themes appear best positioned over the next 12-18 month?
Overall, India is priced quite highly, with pockets of extreme valuations, but there are areas with very good fundamentals. Financials is one of the areas more favourable, given how well the economy is performing and credit growth.On the IT side, it's about being very specific. Some companies will benefit well from AI, others might lose out, but not the whole sector. Some companies have been hit hard despite strong fundamentals.

What is your outlook on the Indian rupee over the next year?
A lot of emerging market currencies depend more on what the dollar does than what they do themselves. Through 2025, you saw dollar weakness versus emerging markets.The dollar is expensive relative to its history, and with a huge fiscal deficit and inflation above expectations, it should weaken, which is good for emerging market currencies such as the Indian rupee. If the US increases interest rates to curb inflation, the dollar will strengthen. So a large part is dependent on US policy.India has good GDP growth, but inflation is still expected to be higher than in the US, so you would expect the rupee to depreciate over time.