In this edition of ETMarkets Smart Talk, Puneet Sharma, CEO and Fund Manager at Whitespace Alpha, explains why the current correction is less about earnings and more about a complex interplay of rising crude prices, a weakening rupee, and persistent foreign outflows.
Sharma highlights that while these pressures could keep markets volatile in the near term, oversold conditions may also trigger sharp counter-trend rallies.
He cautions investors against reacting impulsively, stressing the importance of discipline, diversification, and focusing on quality businesses as uncertainty around inflation, interest rates, and global growth continues to shape market direction. Edited Excerpts –
Q) March has been a roller coaster. How are you reading markets — more pain ahead?
A) This is not a conventional earnings-led correction — it is a macro repricing event driven by oil, currency, and global risk sentiment. Crude sustaining above ~$100, the rupee weakening towards ~92–93, and ~$5–6 billion of foreign outflows are all part of the same chain reaction.
As long as these pressures persist, volatility is likely to remain elevated. However, markets are already in oversold territory, which means sharp counter-trend rallies are equally possible.
Importantly, if inflation risks rise further due to oil, the RBI may be forced to stay cautious or delay any easing, which can keep liquidity tight. So the market is likely to remain two-sided — volatile, not directionally bearish.
Q) IT has been the worst hit. Are there sectors now looking attractive?
A) The IT sector has seen a sharp correction of around ~20%, but this is not just about valuations — it reflects uncertainty around demand and the evolving impact of AI on traditional revenue models.
In such environments, it is risky to label sectors as “cheap” purely based on price. Markets typically correct broadly before differentiation emerges.
More importantly, the near-term earnings cycle could see some pressure. If macro uncertainty persists, Q4 numbers across sectors — not just IT — may see some softness, particularly in export-linked and margin-sensitive businesses.
So rather than sector rotation, the focus should be on quality businesses with strong balance sheets and earnings visibility.
Q) What are the good, bad and ugly scenarios for Indian markets?
A) Good: The constructive near-term path would involve: (1) oil stabilizing and/or falling on improved transit/security conditions, (2) foreign outflows slowing, and (3) India’s domestic bid (institutional/retail) continuing to cushion volatility.
The bad is external — oil stays elevated long enough to lift inflation and compress margins, while global growth slows and central banks hesitate to cut rates.
This is the scenario many global strategists are warning about: market commentary has increasingly emphasized that the inflation impulse from oil may delay easing even as growth risks rise.
The “ugly” case for India is a prolonged, disorderly energy disruption that forces India to absorb the shock via a weaker currency, worsening the terms-of-trade hit and potentially triggering second-round inflation effects.
In such a situation, the RBI may have limited room to support growth through rate cuts, prioritizing stability instead. Currently, we are in the “bad,” with risks skewed depending on how oil evolves.
Q) Rupee is hitting fresh lows. Where is it headed and what does it mean?
A) The rupee’s depreciation towards ~92.4–92.5 is largely a function of elevated crude prices and a strong dollar environment.
If oil sustains at current levels, a move towards 94–95 cannot be ruled out. However, the adjustment so far has been relatively gradual. A move beyond 95 is plausible in a prolonged conflict/high-oil scenario, with the central bank expected to smooth volatility rather than defend a specific level.
Market impact is mixed: exporters benefit in INR terms over time, but a weaker rupee increases imported inflation (especially energy), tightens financial conditions, and can pressure consumption and margins if firms can’t pass costs through.
Q) Will crude above $100 hurt India’s macro story?
A) Sustained crude above $100 is a clear headwind for India. It directly impacts inflation, widens the current account deficit, and puts pressure on the rupee.
The key factor here is persistence. A short spike is manageable, but if elevated prices sustain, it starts feeding into earnings through higher input costs and weaker consumption, which could reflect in upcoming quarters.
In such a scenario, Q4 earnings may begin to show early signs of margin pressure, especially in consumption and industrial sectors.
India’s macro framework is stronger today, but high crude acts as a stress test — not a structural breakdown.
Q) How should investors (30–40 age group) recalibrate portfolios?
A) For investors in this age group, the advantage is time horizon. This is not a phase to make aggressive allocation shifts based on short-term market movements.
The focus should remain on disciplined asset allocation, diversification, and continuing systematic investments. Volatility should be used to rebalance portfolios rather than reposition them entirely.
Given the current environment, it is also important to avoid excessive exposure to leveraged or high-beta segments. Stability and consistency tend to outperform in uncertain phases, especially when macro variables like oil and currency remain unpredictable.
Q) What should investors avoid doing right now?
A) The biggest mistake in such phases is reacting to short-term volatility with long-term capital.
A 3–4% dip in SIP flows is not unusual during uncertain periods and should not be seen as a trend reversal.
Investors should avoid stopping systematic investments, overtrading, or taking leveraged positions. Macro-driven volatility — especially involving oil and currency — can amplify drawdowns quickly.
Markets recover faster than investor behaviour. The real risk is not the correction itself, but breaking discipline at the wrong time, which can permanently impact long-term returns.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)