Build a portfolio of equities, fixed income, precious metals: Taher Badshah

'Build portfolio of equities, fixed income, precious metals'

Goods and services tax (GST)-related developments, along with S&P Global Ratings’ upgrade of India and hopes of lower tariffs, have kept equity markets buoyant in recent days. Taher Badshah, chief investment officer at Invesco Mutual Fund, tells Puneet Wadhwa over a telephonic conversation that Indian markets, after material underperformance relative to global markets over the past 12 months, are far from the euphoria seen in 2024. Edited excerpts:

 

Have the markets discounted the worst regarding tariff-related developments?  Tariff developments in India have diverged sharply from market expectations. Given the fluid situation and the complex factors involved, the current tariff structure may not be final. Nonetheless, Indian policymakers would do well to prepare for the worst and deploy domestic levers, including second-generation reforms, to navigate an increasingly uncertain global environment.

 

Markets are currently taking comfort in India’s ability to act, supported by conducive macros such as inflation, interest rates, current accounts, and contained system leverage. The impending GST reforms and the government’s focus on expanding employment are steps in the right direction.

 

Consumption versus capital expenditure (capex): which should investors favour in light of the recent GST rate adjustment news?  Urban non-affluent demand has suffered over the past few years due to slow wage growth, higher tax compliance, and elevated interest rates. This is expected to reverse as tax-related pressures ease, inflation recedes, and rural demand strengthens on the back of good monsoons. The proposed GST rationalisation should give a shot in the arm to low- and mid-level consumption.

 

We do not expect this to come at the cost of public spending, as the government can offset potential revenue losses. In the short term, investor interest will likely revive in the consumption theme, potentially at the expense of capex-oriented sectors. Over the medium term, both consumption and capex engines are likely to fire India’s growth.

 

What’s your reading of the 2025-26 April-June quarter earnings season?  Equity markets remain cautiously optimistic about the re-acceleration of corporate earnings in the coming quarters, supported by a busy festival season, softer interest rates and inflation, improved liquidity, and increased public spending.

 

April-June quarter earnings for the Nifty 500 grew 9.7 per cent, compared to 9 per cent and 8 per cent in the January-March and October-December 2024-25 quarters, respectively, suggesting a potential double-digit exit quarter by March 2026. While valuations cannot be said to depict pessimism, Indian markets remain far from the euphoria of 2024 after a period of material underperformance relative to global peers.

 

Can you break this down across large, mid, and smallcaps?  We expect broad market earnings to climb to mid-double digits over the next year, with large and smallcaps achieving early double digits and midcaps approaching 15 per cent. Modest inflation, a rural recovery aided by good monsoons, tax benefits, continued public spending, and a favourable base are likely to contribute.

 

Which sectors are a spot of bother?  Sectors such as information technology and commodities are clearly underwhelming and remain hostage to discretionary spending in the US and a broader global economic recovery. Domestic sectors like capital goods, consumer services, and non-lending financials retain healthy momentum. Lenders and parts of consumer discretionary, such as value retail and entry-level automotive, are expected to perform better in the times to come.

 

What should be an ideal portfolio strategy for investors now?  A portfolio with a balanced mix of domestic and international equity, along with fixed income and precious metals, is recommended. Diversified flexicap strategies suit low- to medium-risk investors, while mid/smallcap or focused funds are ideal for those with higher risk tolerance. Short- to mid-term debt products offer attractive accruals, while long-dated government securities can provide capital gain opportunities.

 

Are foreign institutional investors (FIIs) concerned about regulatory uncertainty in India following the Jane Street development?  Recent FII outflows may have coincided with regulatory developments related to certain clampdowns, but we do not see them as a material influencer of foreign flows. A stronger regulatory framework could prove beneficial in the long term.

 

India’s slower earnings growth, tariff disadvantages, and relatively higher valuations currently impede foreign investor flows compared with other emerging markets. While FII flows arguably induce market beta, the risk of outflows causing drawdowns in Indian equity returns appears considerably diminished.