Markets remain hypersensitive to exogenous shocks: Ashwin Patni

Stock market outlook: Several risks remain underappreciated or insufficiently priced, including high valuations and earnings downgrade risk in Indian equities, cautions Ashwin Patni of Julius Baer

Fresh tensions between Israel and Iran have reinforced, once again, that geopolitical shocks have become more frequent and unpredictable for stock markets. In an email interview with Nikita Vashisht, ASHWIN PATNI, head of wealth management solutions at Julius Baer says that India remains one of the best-positioned emerging markets (EM) – both from a structural and macroeconomic perspective. Edited excerpts:

 

Which is a bigger risk for market stability - Trump's tariffs or geopolitical instability?  The second half of 2025 (H2-2025) will likely see a delicate balance between monetary easing, geopolitical developments, and evolving global trade dynamics. While US Fed's policy rate actions will be keenly watched, the markets remain hypersensitive to exogenous shocks.

 

Between the two, geopolitical instability poses the more unpredictable and persistent threat to market stability. In the last three years, geopolitical shocks have become more frequent and unpredictable. With the US focusing more on domestic priorities, an emerging multi-polar world adds unforeseen complexities.

 

The US tariff strategy, while disruptive, has now softened. That said, Trump's tariff rhetoric—particularly if targeted at key trade partners—can stoke deglobalisation fears and impact earnings visibility across export-heavy sectors.

 

Which investment themes can shine in the near-to-medium term? Are you looking at alternates as well? 

We see selective opportunities emerging across both public and private markets. Thematically, we remain constructive on a) India's capex revival and manufacturing push; b) US AI infrastructure and semiconductor supply chain; c) Green transition (energy storage, EV supply chain, renewables); d) Healthcare innovation and longevity tech.

 

Given the potential volatility ahead, we are advising clients to maintain a barbell strategy — combining high-quality, income-generating assets at the short to medium end of the yield curve. A bias on large-cap, flexi-cap and hybrid solutions may help to ride out the equity market volatility.

 

We are also actively evaluating alternatives — especially global funds, REITs/INVITS in rate-sensitive markets— to enhance portfolio resilience and yield in an environment where traditional correlations may break down. 

How does India score within EMs? 

India remains one of the best-positioned EMs from both a structural and macroeconomic perspective. Even if the US-China trade dynamics normalise, global investors are increasingly valuing policy consistency, earnings visibility, and demographic driven demand — all of which tilt in India's favour.

 

India offers a rare combination of domestic demand insulation, reform-led capital spending, and corporate deleveraging. While valuations are rich in pockets, we continue to see long-term FPI interest in the India story.

 

Among EMs, India's political stability, currency stability, and growth visibility provide a relatively safer harbour — particularly for long-only, benchmark-aware global allocators.  ALSO READ | India holds the top spot in our EM playbook: Bernstein's Venugopal Garre 

How should someone, with reasonable risk tolerance, build their portfolio now? 

We emphasize on liquidity management and laddered debt instruments to ensure both flexibility and stability as market cycles evolve. Investors may make minor tweaks to their portfolio depending on the market situation. This is a market for disciplined diversification. Time in the markets beats timing it. Hence, a staggered investing approach may be more favourable in light of the current market situation.

 

Are there any risks that the markets are not pricing in/have not fully priced in? 

Several risks remain underappreciated or insufficiently priced, including high valuations and earnings downgrade risk in Indian equities; reversal of globalisation and volatile geopolitics; and assumption of a benign inflation regime in India going forward. However, any climate shock delivered by the Southwest monsoon may prove detrimental to inflation and a quick reversal of disinflation being witnessed currently. A surprise RBI MPC decision to frontload interest rate and CRR cut may require between the lines reading. There may be a slight probability of weaker than anticipated domestic growth going forward.

 

Should investors look at global diversification? 

At this point the US and selective European markets offer diversification opportunities to investors due to abundance of global market leaders in these geographies. There's now a growing suite of feeder funds, global ETFs, GIFT City structures etc. in India that facilitate such exposures, making it more accessible than ever for HNI and UHNI investors.