The Indian economy needs to resolve its structural challenges to become a more attractive destination for foreign investors even though valuations in the domestic stock market are now in line with their fair value, Vinay Paharia, chief investment officer at PGIM India Asset Management, the Indian subsidiary of US-based financial services major Prudential Inc, told Akash Mandal in an interview. Edited excerpts:Equity markets have been confronted with one negative event after another. How do you navigate such times to outperform others?First and foremost, I think that the thought process that equity should deliver high returns at all points is a myth. It is a volatile asset class. There are times when returns are high, which means they (equity markets) are running ahead of fundamentals. There are times when returns are low, which means they might be running behind fundamentals.Now, it should not ultimately devolve into a circus by focusing on temporary performance. When you drive a car in one lane, the other lane moves faster. When you move to the other lane, this starts moving faster. Thus, the myth of outperformance in a very short period of time is something we should stay clear of.What about FIIs? Could they return to India, especially as other emerging markets have seen higher flows and returns in the recent past?Yes, there are other markets that have become attractive, because of which a lot of money did flow to other markets. That reiterates the theory that if there is a potential for returns to be made, then money will flow there. And the same rule applies for India too. You can never predict when, but whenever it happens, it can have a meaningful impact on the performance of the stock market.PGIM has a fairly wide global network with access to executives operating across the globe. There are a few things that we can distill from our discussions. First, the relative attractiveness of India went down about a year-and-a-half back simply because India’s valuations had reached a premium compared to many other Asian markets. Second, the underlying fundamentals had improved across many of the other Asian markets. On top of that, India’s high dependence on crude oil imports is obviously a near-term concern.Thus, while some of these concerns are temporary, others are structural. The temporary concerns are transient. Structural concerns need to be addressed, and I think they are being addressed over a period of time.What are some of these structural challenges?I think India needs to invest more in research and development. We have seen how India’s core advantage was white-collar professionals in the IT sector, which is now expected to be a little bit more of a challenge since much of this work can potentially be done by AI. So, India needs to elevate itself on the value curve. There is work happening on that.Story continues below this adIn addition, there are other things that the government is trying to address.For example, the semiconductor mission ensures that India moves in the direction of manufacturing and participates in the value chain. So, many of these changes are happening on the ground gradually, and I’m sure investors will take notice of them.The market direction has been determined primarily by geopolitical events in the past few months. Will this continue or will the focus shift to corporate earnings?It is very difficult to predict what the market will do in the near term. But what can we do as investors? We cannot react to things that bring potentialreturns in our favour. So, as a fund house, we went out and clearly highlighted to our investors at one point of time that this is a fantastic opportunity to buy. We have never done that over the last three years. About 10-15 days back, we had put out a note that said this is a great time to buy simply because large caps are trading at a meaningful discount to their fair value, small caps are trading very close to their fair value, and mid-caps are at a very modest premium to their fair value, which means the potential return has gone up.Story continues below this adThere have been many crises in the past and their impact definitely needs to be discussed. But they have a very near-term impact. And investors should take advantage of the fluctuations in the market.