In an interaction with Kshitij Anand of ETMarkets, Ritesh Taksali highlighted that while the Nifty50 trading at around 20x earnings appears attractive from a historical perspective, investors should remain cautious as the market is “not out of the woods yet.”
He pointed to persistent concerns around oil prices, inflation, and geopolitical tensions, which are likely to keep volatility elevated and drive market direction in the near term. 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) We have been witnessing elevated volatility for over a year now. It began with trade-related concerns and was later exacerbated by the West Asia conflict, which led to a broad-based correction across asset classes.
Markets have largely been reacting to global developments rather than domestic macro fundamentals, and we expect this trend to persist into FY27.
Going forward, market movements are likely to be influenced by factors such as oil prices, inflation expectations, and the potential impact of the ongoing geopolitical tensions on corporate earnings.
However, following the recent correction, valuations have become more reasonable. The Nifty 50 is currently trading at around 20x trailing earnings, which appears attractive from historical perspective.Additionally, recent developments around a ceasefire between Iran and the US, along with the reopening of the Strait of Hormuz, have helped ease concerns around energy prices and supply disruptions.
That said, while equity valuations appear attractive at current levels, we are not entirely out of the woods. Risks persist, particularly around oil prices, inflationary pressures, and potential geopolitical shocks, which could continue to create volatility in markets.
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) The importance of diversification cannot be overstated, especially considering what we have experienced over the past two years. While Indian equities underperformed last year, international equities and precious metals emerged as strong performers, highlighting the value of having a well-diversified portfolio.
There are also phases when traditional correlations between asset classes tend to break down—for instance, the current environment where both equities and precious metals are moving in the same direction. Such periods can be counterintuitive, but they reinforce the need to stay diversified rather than rely on short-term relationships.
Over the long term, diversification continues to be one of the most effective tools for navigating volatility and managing risk.
Given that all major asset classes have experienced corrections over the past two months, there is a compelling case for investors to gradually add exposure across Indian equities, fixed income, precious metals, and international equities, with a time horizon of at least five years.
Q) FIIs have remained net sellers in Indian equity markets withdrawing Rs 1.6 lakh cr. What will reverse the flows?
A) Foreign Portfolio Investors (FPIs) have seen unprecedented outflows over FY25 and FY26, with nearly INR 3 trillion exiting Indian markets, even higher than outflows during Covid period.
The reversal of these flows will largely depend on external factors, such as a faster resolution of the ongoing war, which would help ease supply-side constraints and stabilize oil prices.
Q) After the recent correction do you see Indian market trading at reasonable valuations compared to developed or emerging markets?
A) India’s valuation premium relative to emerging markets has moderated significantly—from a peak of over +2 standard deviations above its 20-year average in FY23 to levels now closer to its long-term mean.
Interestingly, India is currently trading at a discount to US equities, at around -1 standard deviation relative to its 20-year average.
The premium that India enjoyed over its EM peers post-2020 was driven by a combination of factors, including strong policy support through initiatives like PLI schemes, a sustained infrastructure push, robust macroeconomic stability, corporate deleveraging, and superior return ratios across the corporate sector.
Can this premium expand again? We believe the answer is yes. India continues to stand out on macro stability and benefits from a government focused on long-term reforms and growth.
Additionally, its positioning in the global technology landscape remains a key structural advantage as it will be beneficiary of the global acceleration in digital transformation and AI adoption with its deep technology talent pool, strong IT services base.
US equities have delivered exceptional performance, largely driven by the rally in technology and AI-related stocks. However, there are emerging concerns around stretched valuations in some segments of the AI space. Any meaningful correction in these stocks could lead to a narrowing of the valuation gap between India and the US.
Q) Which sectors are likely to hog limelight in FY27 after the recent fall?
A) India is a unique market, with a well-diversified sectoral representation. If the war persists over a longer period, defensive sectors are likely to remain a safe-haven for investors.
However, any quick resolution could create an opportunity to increase exposure to cyclical sectors such as financials, infrastructure, and consumer discretionary, which have been impacted by recent volatility.
Additionally, ongoing geopolitical uncertainties have prompted a reassessment of national security priorities. This is reflected in steadily rising defence budgets across regions, which is likely to benefit defence-related stocks over the medium to long term.
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) Alternates have grown in popularity in India over the last few years. There are wide range of opportunities available in this segment such as Alternative Investment Funds, REITs, InVITs, Unlisted equities etc.
Each of these have a risk-reward profile unique to it. These are complex in nature, and illiquid which investors need to be mindful while they continue to increase exposure.
With traditional public markets of equity and debt seeing high volatility, Alternates offer a route to diversify and reduce portfolio volatility.
Exposure to real assets offer an opportunity to invest in yield-generating assets which are expected to also be a better inflation hedge.
Q) How do you see the currency moving in the next few months?
A) Currencies of major economies including India have remained under pressure due to global headwinds. Currency prices may get some near-term relief on account of the ceasefire announced in the middle east crisis.
However, given the global uncertainty and impact of elevated crude oil prices, any further upside may remain capped. The trajectory going ahead is expected to remain dependent on global macroeconomic conditions.
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) In periods of heightened market volatility—especially when sharp movements across asset classes are driven by global developments—it becomes crucial not to react to daily news flow. Investors should avoid getting distracted by short-term noise or losing conviction during such phases.
Instead, the focus should remain on the bigger picture and adherence to sound investment principles. Volatility and corrections, while uncomfortable, often create opportunities to accumulate fundamentally strong businesses at more reasonable valuations.
Q) How do you see Gold and Silver moving in FY27?
A) The movement in gold and silver prices is likely to be driven largely by inflation dynamics, particularly as concerns around rising inflation have resurfaced due to energy-related supply constraints and evolving central bank actions.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)