Caution name of the game in Indian markets, says Manishi Raychaudhuri

With tariff uncertainties, weakening earnings, and premium valuations, investors are urged to adopt selective stock-picking strategies while awaiting clearer market triggers.

Donald Trump’s tariffs on Indian goods have kept markets uneasy. Manishi Raychaudhuri, chief executive officer of Emmer Capital Partners, tells Puneet Wadhwa in an email interview that the Indian market may derate further over the next quarter or two. Edited excerpts:  How should investors approach the equity markets given the tariff developments?

  President Trump’s tariff announcement on India is a clear dampener to sentiment, especially since many Asian peers like South Korea, Indonesia, Japan, and Vietnam secured reduced tariffs. On the surface, sectors such as textile and garment, pharmaceutical, electronics, automotive, and machinery component appear most vulnerable.

   

That said, many details, such as sectoral exemptions, remain unclear, and trade negotiations are progressing. A more definitive assessment of the impact on trade and growth will only be possible later. For now, caution is the name of the game in Indian markets.  When do you expect the markets to break out of this rangebound movement, and what will drive the shift?  The Indian stock markets’ rangebound movement reflects uncertainty around the “micro” factors: concerns over the earnings season and persistently declining consensus earnings forecasts across most sectors.

   

India faces a paradox: strong, stable macro indicators alongside worrisome micro signals. The macro picture includes shrinking fiscal and current account deficits and inflation near a decade low. The micro side shows weakening earnings growth and guarded corporate commentary.

   

Markets will likely break out of this ‘drift zone’ once earnings estimates bottom out and begin to recover. A rebound in urban consumer confidence will be an essential ingredient for that. Government capital expenditure revival, rising disposable incomes of taxpayers, and higher public sector wages could revitalise consumption, but investors will wait for clear evidence of this turnaround before committing larger sums.  How worried are foreign institutional investors (FIIs) about regulatory uncertainty following the Jane Street case?  Anecdotally, some FIIs have expressed worries about a heightened regulatory enforcement climate and potential tightening of rules around algorithmic trading and market access. Yet, the regulator’s firm stance is also viewed positively as a sign that compliance, transparency, and fair trading practices will be under rigorous focus going forward.

 

July’s FII outflows to markets like South Korea, Hong Kong, and Taiwan were unrelated to the Jane Street issue. The reallocation stemmed more from India’s inferior earnings outlook and premium valuations.  Are there more headwinds ahead for the Indian markets?  The Indian market may derate further over the next quarter or two. While earnings forecasts continue to slide, valuations remain expensive relative to Asian peers. Although aggregate gross domestic product growth prints have been healthy lately, they don’t fully reflect on-ground data points on consumption or, more critically, corporate earnings. We are overweight on Hong Kong/China and South Korea and hold a ‘neutral’ stance on Indian equities.  How can investors make money in a sideways market? Which sectors are worth attention?  Selective stock picking is the only way to beat this sideways-moving market. Key variables to watch are earnings delivery, sustainable growth, superior return ratios, and reasonable valuations.

 

We favour frontline private banks, select consumer discretionary names, and industrials. In our recent Asian Model Portfolio reshuffle, we trimmed exposure to luxury consumer discretionary and defence stocks and excluded the IT services sector altogether.  What asset allocation would be ideal for risk-tolerant first-time investors?  For a risk-taking newcomer, a mix of 60 per cent equity, 20 per cent fixed income, and 15 per cent precious metals might work well. Keep in mind, equity is a long-term play. Around 5 per cent of risk capital could be allocated to cryptocurrency, preferably via exchange-traded funds.