MUMBAI, April 13 -- Foreign investors could begin returning to Indian equities as valuations in the broader market turn more reasonable and earnings growth stabilizes, but a sustained surge in inflows will likely hinge on easing capital gains tax rules for foreign institutional investors (FIIs), said Dinshaw Irani, managing director and chief executive officer at Helios Capital Asset Management (India) Pvt. Ltd.

In an interview with Mint, Irani said pockets of the market continue to offer value despite headline premiums. Even though smallcaps are quoting at a slight premium to largecaps, on a price-to-earnings-growth (PEG) basis, the ratio is almost half that of largecaps. Thus, valuations are looking attractive, he added.

Helios India,...