However, this phase should be viewed as a period of adjustment rather than a signal of a deeper market reversal, says Rajesh Iyer, Managing Director – Global Investment Solutions & Asset Management.
In an interaction with Kshitij Anand of ETMarkets, Iyer highlighted that despite near-term uncertainties and range-bound movements, India continues to stand out on the back of its strong structural growth story, supported by earnings momentum, domestic consumption, and sustained public capex.
He believes that while volatility may persist in the short term, the medium- to long-term outlook remains constructive, with stock-specific opportunities likely to drive returns. Edited Excerpts –
Q) Thanks for taking the time out. We have entered FY27 on a volatile note amid geopolitical concerns, rising oil prices, possibility of rise in interest rates etc. Where do you see markets headed?
A) Volatility at the start of FY27 should be seen more as a phase of adjustment rather than a change in market direction. Global markets are grappling with multiple crosscurrents—geopolitics, energy prices, and monetary policy recalibration—yet India continues to stand out due to its structural growth story. Earnings growth, domestic consumption, and public capex remain supportive. Over the near term, volatility is expected to continue – markets may remain range‑bound with sharp rotations, but over the medium to long term, the trajectory remains constructive with stock‑specific opportunities outweighing broad index moves. The base case assumed is a quick resolution and not an inordinate extension of the current conflict.
Q) What should investors do who are planning to put fresh money say Rs 10 lakh in markets? What should be the sectoral allocation?
A) Investors should avoid lump‑sum timing risks and instead stagger investments through systematic allocation. A balanced approach across themes is prudent. Core allocations can be tilted towards financials, capital goods, and manufacturing‑linked sectors, supported by India’s investment cycle. Select exposure to consumption, healthcare, and technology can add stability, while cyclicals like metals or energy should be approached selectively. Rather than rigid sector allocation, investors should focus on businesses with strong balance sheets, earnings visibility, and pricing power.
Q) FIIs have remained net sellers in Indian equity markets, withdrawing Rs 1.6 lakh cr. What will reverse the flows?
A) FII flows are influenced by global liquidity, interest rate differentials and relative valuations. A clear signal of global rate stability, moderation in bond yields, and incremental visibility on earnings growth can trigger a reversal. India continues to command strategic allocation due to its growth premium; once global uncertainty eases and earnings delivery improves, foreign investors are likely to re‑engage, though flows may be more selective than in the past.
Q) After the recent correction do you see Indian market trading at reasonable valuations compared to developed or emerging markets?
A) While headline valuations for India still trade at a premium to most emerging markets, the gap has narrowed post‑correction. Importantly, the premium is backed by superior earnings consistency, stronger corporate balance sheets, and macro stability. On a growth‑adjusted basis, especially in sectors aligned with domestic demand and manufacturing, valuations are far more reasonable today than they were a year ago.
Q) Which sectors are likely to hog limelight in FY27 after the recent fall?
A) FY27 could see leadership from sectors linked to India’s investment and formalisation cycle—capital goods, infrastructure, defence, power, and manufacturing‑oriented plays. Financials, particularly well‑capitalised banks and insurers, remain long‑term compounders. Additionally, selective opportunities are emerging in consumption, pharmaceuticals, and technology services where valuations have corrected, and earnings visibility is improving.
Q) What role will alternates play in the next few years? I am sure a lot of investors are exploring the route to diversify the portfolio?
A) Alternatives are increasingly becoming a meaningful portfolio diversifier rather than a niche allocation. Assets such as gold, private equity, private credit, REITs, InvITs and structured strategies help smooth volatility, provide differentiated return streams and reduce correlation with public markets. As investor sophistication rises, alternatives will likely form a structural allocation, especially for investors with longer investment horizons.
Q) How do you see the currency moving in the next few months?
A) The currency is likely to remain broadly stable with mild depreciation bias driven by global risk sentiment and crude oil movements. Strong forex reserves, improving current account dynamics and proactive central bank intervention provide a cushion against sharp volatility. Any movement is expected to be gradual rather than disruptive.
Q) You have seen many market cycles and I am sure this one is no different. Things which one should avoid doing at current juncture?
A) The biggest risk is reacting emotionally to volatility. Investors should avoid chasing short‑term themes, over‑leveraging during uncertain phases, or exiting quality assets in panic. Market cycles reward discipline, diversification and patience. Staying invested with a clear asset‑allocation framework has historically delivered better outcomes than attempting to time every macro event.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)