Anand Rathi, Founder and Chairman of the Anand Rathi Group, believes that while the structural case for US markets remains intact, the scope for broad-based upside in the medium term is limited.
With much of the recent rally concentrated in a narrow set of names and valuations pricing in strong growth, he says investors should temper return expectations, reassess global allocations, and focus on markets offering better risk–reward dynamics. Edited Excerpts –
Q) How has Budget 2026 turned out for Indian investors investing in global markets?
A) Interest in global markets has increased in recent months, largely because Indian equities have remained range-bound over the past 18 months.
The initial market response to Budget 2026 was muted, as the government reiterated its emphasis on policy continuity and long-term capacity creation rather than short-term stimulus.
However, when viewed in a forward-looking context, much of the adjustment appears to be behind us. Earnings expectations are now being revised upward, and both fiscal and monetary policy are gradually turning accommodative.This combination should support a recovery in earnings growth in FY27. With valuations now at more comfortable levels, India is once again positioned to revert to its historical trend of relative outperformance, strengthening the investment case versus global peers.
Q) India has signed two major trade deals—one with the EU and another with the US. Does this strengthen the case for investing in either country?
A) For India, these agreements are clearly positive from a sentiment and risk perspective. The India–US trade framework, following the India–EU agreement, significantly reduces geopolitical and tariff-related uncertainties.
Our estimates suggested that a hypothetical 50% tariff shock could have reduced India’s GDP growth by several basis points. Yet, in the months following tariff implementation, exports declined by only about 5%, largely due to strong momentum in electronics exports, which continue to grow at over 100% year-on-year.
The more meaningful upside is likely to accrue to labour-intensive sectors such as footwear, textiles, and jewellery, which had seen some contraction after tariffs were imposed.
A recovery in these segments would be supportive from an employment and consumption standpoint. That said, our assessment indicates that the direct earnings impact of tariffs on Nifty 50 companies would have been limited.
As such, we do not expect significant upward revisions to index-level earnings solely on this basis. Nonetheless, the removal of tariff overhangs is a clear incremental positive for India.
For the United States, India constitutes a relatively small share of its import basket. Additionally, US equity valuations remain elevated.
On a relative basis, Indian equities continue to offer a superior risk–reward profile compared to US markets.
Q) How do Indian equity valuations compare with other emerging and developed markets over the long term?
A) India’s valuation premium relative to both emerging and developed markets is structural rather than cyclical. Historically, Indian equities have traded at a 40–60% premium to MSCI Emerging Markets, reflecting higher nominal GDP growth of 10–11%, earnings growth of 12–15%, and a steadily increasing share of domestically funded capital.
At approximately 18–22x one-year forward earnings, India trades at a premium to most emerging market peers and broadly in line with the US, while remaining more expensive than Europe (12–14x) and Japan (14–16x).
This premium constrains the scope for near-term multiple expansion, but it also reduces the risk of sharp valuation corrections.
Consequently, long-term returns in India are more likely to be driven by sustained earnings compounding and capital formation rather than valuation re-rating.
Q) How should investors think about currency headwinds, given the recent depreciation of the INR against the USD?
A) For dollar-based investors, INR depreciation has recently enhanced asset returns. However, we expect the coming year to be different on both fronts US equities and the INR.
US equity valuations remain elevated, and much of the recent rally has been driven by a narrow AI-led theme, which we believe is unlikely to sustain the same momentum going forward.
On the currency side, the recent INR depreciation was primarily driven by capital outflows rather than current account stress.
India’s external balances remain comfortable, and on a fundamental basis, the INR appears undervalued. As earnings growth normalises and capital flows stabilise, we expect outflows to reverse and currency pressures to ease.
Q) For an investment of ₹10,00,000 (approximately $11,000) or more, what should be the ideal asset allocation?
A) Asset allocation must always be tailored to an investor’s age, risk tolerance, time horizon, and tax considerations. Strategic allocation decisions should be based on long-term return characteristics rather than short-term market movements.
Historically, Indian equities have consistently outperformed other asset classes over long periods. In light of this, we continue to recommend maintaining a relatively higher allocation to Indian equities.
Other asset classes may be included, but primarily as low-beta diversifiers rather than as core alpha-generating components of the portfolio.
Q) Will commodities play a larger role in global portfolios in 2027?
A) We do not expect a broad-based increase in commodity allocations. While interest in gold and silver has risen recently, these markets have already experienced sharp corrections following strong rallies.
The increased role of commodities appears to be structural in nature, with investors including central banks using them primarily as portfolio diversifiers.
Global growth is expected to remain close to its long-term trend in 2027, suggesting that risk-off positioning is unlikely to dominate portfolio construction. As a result, we do not foresee a sustained or broad-based rally across commodity markets.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)