We see India as a relatively bright spot: BlackRock Investment's Vivek Paul

Mid and smallcaps have seen frothy valuations come off the boil, creating scope for stock-specific opportunities amid market dislocations, Vivek Paul said

Markets have clawed back some ground after Donald Trump’s tariff threats and India-Pakistan tensions rattled sentiment. London-based VIVEK PAUL, head of portfolio research at BlackRock Investment Institute, tells Puneet Wadhwa in an email interview that while gold remains a useful portfolio diversifier in the current environment, investors should weigh any major moves carefully. Edited excerpts:

 

Some see India as a relatively safe haven for equities. Your view?

 

We see India as a relative bright spot, given its limited exposure to the external trade shocks affecting other economies. Goods exports to the US account for less than 5 per cent of India’s gross domestic product, which cushions it from the direct impact. That said, Indian equities haven’t been immune to volatility driven by global trade uncertainty and domestic economic moderation.

 

The recent US announcement of a 26 per cent reciprocal tariff — now paused for 90 days — adds to the noise. But India’s lower dependence on exports, a resilient domestic market, and long-term growth drivers like digitisation and urbanisation offer some insulation against external shocks. Indian policymakers have also moved quickly to resolve trade issues, which could help contain the risks.

 

Is there any silver lining for global markets right now?

 

It’s not all doom and gloom. Globally, themes like artificial intelligence (AI) and geopolitical shifts are shaping returns. In the US, AI remains a powerful force. In Europe, opportunities are emerging in banking and defence. We prefer European credit and government bonds over their US counterparts due to more attractive spreads and structural challenges in the US.

 

What’s your view on emerging markets (EMs), and where does India fit in?

 

We’re neutral on EM equities over the next six to 12 months, as US tariffs and trade tensions are expected to weigh on growth in China and the broader EM universe. Over a longer horizon, though, India stands out — we would hold above-benchmark weights to largecap Indian equities, supported by structural growth drivers. Selectivity remains essential in the near term, but the longer arc looks promising as multi-year trends are starting to play out.

 

Large, mid, and smallcaps. Rank in order of preference.

 

Largecaps are our top choice, backed by strong structural drivers and the potential for above-benchmark returns over the medium to long term.

 

Mid and smallcaps have seen frothy valuations come off the boil, creating scope for stock-specific opportunities amid market dislocations. However, we remain on the sidelines at the broader sector level.

 

Falling oil prices and India’s potential to benefit from the rewiring of global supply chains are supportive factors. Largecaps offer the most stable returns; mid and smallcaps may provide higher growth potential, albeit with greater volatility. 

 

Any investment themes in India that stand out to you?

 

We’re tracking two themes closely: fast-expanding consumer base and the rising importance of domestic capital markets. Prominent sectors include financial services, consumer staples and retail, along with digital platforms and e-commerce.

 

Your view on corporate earnings growth for 2025–26?

 

We’re monitoring early signals of supply chain disruptions, changes in pricing power, and shifts in consumer demand. Some firms have already lowered their 2025 outlook due to the trade war, warning of rising input costs.

 

Analysts have trimmed 2025 S&P 500 earnings growth projections from 14 per cent in January to around 9 per cent, according to data from the London Stock Exchange Group. Extended uncertainty could prompt further downgrades. Consumer discretionary and industrials — which rely heavily on foreign revenue and global supply chains — have taken the biggest hit.

 

How are central banks likely to react to the developments?

 

If a higher tariff regime represents a stagflationary shock, the policy tradeoff facing central banks becomes more acute. We remain underweight on long-term US treasuries, given persistent fiscal deficits and stubborn core inflation. Instead, we favour short-term treasuries — which we treat as cash-like in our tactical allocation — and medium maturities to counter the market’s pricing of multiple Fed rate cuts this year.

 

We also lean towards European credit — both investment-grade and high-yield — over US equivalents, given the more attractive spreads. Gold remains a useful return diversifier, but any portfolio adjustments should line up with a broader strategy. 

OPPORTUNITY IN THE CRACKS

  AI, India, and what’s still working in shaky markets

  > AI drives US gains despite broader gloom

  > Europe offers select value in banks, defence, and credit

  > Emerging markets under pressure, with China hit by trade tensions

  > India is the outlier — long-term story backed by structural tailwinds

  > Prefer Indian largecaps, but stay selective in the near term