Risk-reward is tilting in favour of Indian equities: Sonam Udasi, Tata AMC

Markets are set to enter Samvat 2082 amid challenging global cues. Sonam Udasi, senior fund manager at Tata Asset Management, tells Puneet Wadhwa in an email interview that while precious metals have outperformed risk assets over the past year, the risk-reward balance is now tilting in favour of Indian equities. Edited excerpts:

 

Will the next Samvat reward equity investors, or will precious metals steal a march?

For the last 18 months, Indian equity markets have been largely range-bound, but the macroeconomic backdrop has improved significantly. Over the next two years, the overall market outcome is expected to be strong, supported by valuation comfort and improving earnings. While precious metals have outperformed risk assets over the past year, the risk-reward balance is now tilting in favour of Indian equities as growth visibility improves. Going forward, both asset classes could perform well, but equities offer better return potential over a three-year horizon.

 

Which sectors do you see leading the next leg of the rally, and which ones look overvalued? Expectations from the upcoming results season?

Currently, there isn't any particular sector that appears significantly overvalued. Value is emerging across segments — information technology (IT), fast moving consumer goods (FMCG), chemicals, and metals are looking attractive, while capex-driven names such as defence and infrastructure also show robust earnings potential. Financials and select NBFCs remain key beneficiaries of credit expansion and improving asset quality. Pharma and healthcare, which faced headwinds from tariff uncertainties, are regaining strength. The results season is expected to confirm a bottom-up earnings recovery across most sectors, driven by steady margins, improved demand visibility, and moderating input costs. It’s likely to be a period where risk-takers benefit the most.

 

Should investors stay away from the consumer / consumption space till the benefit of GST cuts is visible? Discretionary vs staples: Which one would be your pick?

Markets are forward-looking — they tend to discount future growth. The government has injected nearly ₹2.5 trillion into the economy both through tax cuts in the February budget, and now the GST rate cuts, creating additional purchasing power. While Q2 may reflect inventory adjustments, the consumption boost should become visible from the next quarter onwards. Between the two, discretionary consumption appears more promising due to rising affordability and lifestyle upgrades, whereas within staples, food-related companies are likely to outperform. Given India’s consumption-driven economy, staying underweight on this theme would be unwise.

 

Do you see more policy measures from the government in case the consumption pickup fails to get the desired results?

The government's intent to revive growth is already clear and consistent. Since January, the policy focus has been unambiguously pro-growth—seen in accommodative monetary measures, rate cuts, GST reductions, and aggressive trade agreements with the UK, some EU countries, and Middle Eastern nations. With policymakers prioritizing growth, any additional measures, if required, are likely to be targeted at sustaining momentum.

 

What's your take on foreign investor flows versus domestic participation?

Foreign investors had turned optimistic around March–April when growth and policy signals improved, but tariff-related concerns and global uncertainty triggered caution. Recently, the pace of FPI selling has eased, indicating sentiment stabilization. Over the medium-term, domestic investors—through mutual funds and SIPs—will continue to dominate Indian equities, providing resilience against foreign outflows. Monthly domestic inflows of over ₹25,000 crore demonstrate the deepening local investor base. If tariff concerns abate, global investors could eventually play catch-up.

 

How are valuations looking across large-cap, mid-cap, and small-cap segments?

Across the board, valuations are now reasonable. The Nifty and Nifty 500 indices are trading near their 10-year average forward and trailing P/E multiples, suggesting fair value rather than excess. Mid-caps are at around 10 per cent premium to their long-term average, while small-caps still trade slightly higher but have corrected meaningfully after earlier froth. With both price and time corrections largely behind, the stage is set for earnings-driven performance.

 

Which global factors pose the biggest risks to Indian markets right now?

Geopolitical tensions remain the biggest near-term risk. Ongoing wars and tariff threats continue to weigh on global sentiment and trade flows. Tariffs act as a tax on the global economy, raising costs and dampening business volumes. However, there are signs of easing—one conflict in Gaza appears to be nearing resolution, which could signal broader normalization. If de-escalation persists, global macro stability will likely improve, supporting Indian markets.

 

What's your investment strategy or stock selection approach in the current environment?

The approach remains strongly bottom-up, focusing on companies demonstrating sustained revenue and earnings momentum. The market is rewarding performance, not themes. India continues to attract strong liquidity, evidenced by record IPO subscriptions such as the recent LG Electronics issue, which saw bids worth over ₹6 trillion. This reflects investor appetite for quality businesses and long-term confidence in India’s growth story. The focus, therefore, is on identifying fundamentally strong companies positioned to benefit from earnings expansion, policy tailwinds, and domestic consumption growth.