Tariff noise is manageable: Oil is the real threat
The back-and-forth on US tariffs has created near-term market gyrations, but Dalal argues investors should anchor their thinking to the 18% tariff rate that India has broadly agreed upon with the US as a baseline. Any outcome at 15% in the interim is actually a bonus for Indian exporters. “15 is better than 18,” he said simply, dismissing the tariff differential as a known variable rather than a genuine uncertainty.
What concerns him more is the escalating tension between the US and Iran. A sustained geopolitical flare-up could push oil prices sharply higher — and that is where India’s vulnerability lies. As one of the world’s largest oil importers, a spike in crude prices feeds directly into the current account deficit, stokes inflation, and forces a difficult choice between passing costs on to consumers or cutting excise duties and straining government finances. For Dalal, this is a far more dangerous variable for Indian markets than any short-term tariff differential.
FII selling remains a concern as markets bounce
Dalal flagged a persistent worry around market bounces: they hand foreign institutional investors a convenient exit ramp. FIIs have been continuous sellers in Indian equities, and each uptick gives them an opportunity to reduce exposure at higher prices. While he stopped short of calling the situation alarming, the pattern is one investors need to monitor closely alongside the broader macro triggers.
Despite these headwinds, Dalal remains constructive on India’s long-term story. The India-US and India-EU trade frameworks, domestic tax cuts, and a post-budget clarity phase had all primed the market for a recovery. Setbacks are delays, not derailments, in his view — and volatility should be treated as an opportunity to accumulate good stocks at better prices.
IT sector: 90% of the pain is behind us
On one of the market’s most debated questions — whether large-cap IT stocks have bottomed — Dalal is relatively confident. He estimates roughly 90% of the valuation derating in IT is now complete. His reasoning is creative and compelling: rather than evaluating IT stocks purely as growth equities, he suggests viewing them as high-quality cash-generating businesses offering dividend yields of 5–6%, combined with modest price upside of 2–3% annually. That blended return of 9–10%, with equity taxation and limited downside, makes IT names attractive for income-oriented portfolios even if capital appreciation remains subdued for the next 12 to 18 months.
The caveat is honest — investors seeking strong capital returns will need to wait for greater clarity on how traditional IT services companies adapt to tools being rapidly deployed by AI companies. But the floor, in Dalal’s assessment, is largely in place.
Mid-sized private banks: IDFC fraud is an isolated event
The revelation of a ₹590 crore employee fraud at IDFC First Bank rattled sentiment, but Dalal cautions against drawing broad conclusions about the midcap banking sector. He views the incident as company-specific rather than systemic, and notes that the bank has recently raised ₹7,500 crore, leaving it well-capitalised to absorb the hit. He remains personally bullish on IDFC First Bank as an investment, even as he acknowledged shareholder frustration at repeated setbacks under MD Vaidyanathan’s watch.
More broadly, Dalal sees a structural advantage for smaller private and new-age banks: their leaner deposit bases allow them to move faster on savings rates to attract deposits — a critical edge at a time when deposit mobilisation has been the banking sector’s biggest challenge for two years. Larger banks, by contrast, face the problem of repricing their entire historical deposit book whenever they hike rates, squeezing their net interest margins.
Among his preferred picks in the segment, Dalal highlighted AU Small Finance Bank, South India Bank, and CSB Bank as names worth considering, even as he acknowledged AU’s relatively higher valuation.