Markets to stay sideway till US-India sign trade deal: Shreyash Devalkar

A breakthrough in negotiations or clarity on tariff policy could lift sentiment, said Shreyash Devalkar, Head - Equity at Axis AMC

Calendar year 2026 has opened on a tense note for global markets, with fresh geopolitical flashpoints emerging across Venezuela, Iran and Taiwan. For investors, the key concern is whether these developments could derail market returns or merely trigger episodic volatility. Given this, Shreyash Devalkar, Head – Equity at Axis AMC tells Nikita Vashisht in an email interview how markets are assessing escalating geopolitical risks, the extent to which these threats are already priced in, and which sectors are best positioned to withstand global shocks. Edited excerpts:

 

CY-2026 has begun with several geopolitical tensions,  including in Venezuela, Iran, and Taiwan. Will 2026 returns be marred by geopolitical risks?

Geopolitical tensions have resurfaced since the beginning of the year with the US-Venezuela stand-off and China's assertive stance on Taiwan raising concerns about global stability. Historically, such flashpoints tend to cause sharp bouts of volatility rather than sustained market downturns -- unless they escalate into prolonged conflicts.

 

In the near term, these developments could push up crude oil prices and trigger risk-off flows into safe-haven assets like the US dollar and Treasuries, putting pressure on emerging market currencies, including the rupee.

 

For India, strong domestic demand and ongoing structural reforms provide a cushion against external shocks, but elevated energy costs and global risk aversion may weigh on sentiment and near-term returns.

 

Ultimately, India's performance will hinge more on earnings growth and robust macros than geopolitics. While these risks can amplify volatility, they are unlikely to derail long-term growth unless they evolve into systemic crises that disrupt trade and supply chains globally.

 

To what extent are the markets pricing-in escalating geopolitical tensions?

Indian indices have been under pressure recently due to a confluence of external and domestic factors rather than a single trigger. Concerns around US tariff threats on Indian exports and stalled India–US trade negotiations have weighed heavily on sentiment.

 

Persistent FPI outflows in January worth $1.3 billion, in addition to $19 billion in 2025, have exerted substantial selling pressure, reinforcing a risk-off environment. Geopolitical stress has added slight upward pressure on bond yields, nudging 10-year G-Security yields toward the 6.5–6.7 per cent range as traders factor in risk premia from global uncertainty.

 

Which sectors may insulate investors' portfolios from geopolitical shocks, and which are most exposed?

Sectors that tend to insulate portfolios from geopolitical shocks are those with strong domestic demand and limited dependence on global supply chains. These include consumer staples, utilities, and domestic-focused financials, especially retail banking. On the other hand, sectors most exposed are those heavily reliant on global trade or commodity flows—such as oil & gas, metals, chemicals, and export-oriented manufacturing (textiles, gems, auto components).

 

Additionally, aviation and logistics can see sharp cost spikes during geopolitical tensions due to fuel price volatility and route restrictions.

 

Is the absence of a India-US trade deal the only reason for the recent downturn in the market?

The recent downturn in Indian equities is partly influenced by the uncertainty surrounding the India–US trade deal, but it is not the sole driver. The lack of progress on negotiations and renewed US tariff rhetoric have dampened sentiment, especially for export-linked sectors like textiles, gems, and leather, which face order delays and pricing pressure. This has led to cautious foreign flows and some rupee volatility, adding to near-term market nervousness.

 

However, broader macros fundamentals remain supportive. A breakthrough in negotiations or clarity on tariff policy could lift sentiment, but until then, I believe that one could likely see range-bound behavior with intermittent volatility tied to trade headlines.

 

Bottoming out of earnings and growth revival expected by consensus could boost markets if results surprise positively.

 

What are your expectations from Budget 2026?

While the 2025 Union Budget focused on easing the direct tax burden, the government has complemented this with structural reforms outside the budgetary framework—such as GST rationalization and the rollout of labour codes.

 

Collectively, these steps signal a clear commitment to fiscal discipline and structural improvement.

 

Looking ahead, market will watch continued impetus for capex-led growth in the upcoming budget. Investments in infrastructure and manufacturing have the potential to complement consumption-driven momentum, creating a virtuous cycle of demand and job creation.

 

Are the markets' valuations comfortable enough to absorb any deviation from the fiscal glide path?

Valuations have moderated meaningfully over the past year, and this is even more pronounced relative to global markets, which witnessed a strong equity rally in 2025, with several markets gaining between 20 per cent and 60 per cent, while India was an outlier.

 

Valuations are no longer the primary concern; although certain pockets still carry elevated expectations. Nifty mid-cap and small-cap have underperformed large-caps in 2025, but they are still trading at a higher premium vs Nifty 50, compared to their respective historical averages.

 

How is Axis MF managing portfolios when global certainty is low but long-term domestic fundamentals remain strong?

For us, the focus remains on long-term fundamentals rather than reacting to short-term noise. When markets correct, it creates an opportunity to accumulate quality businesses at reasonable valuations instead of chasing speculative, short-term bets. This disciplined approach ensures portfolios are built on strong fundamentals, positioning them to benefit when stability returns.