In an interview with Kshitij Anand of ETMarkets, Eleswarapu said: “India is relatively insulated, but may not be entirely immune to a slowdown, especially for sectors that are globally exposed,” Edited excerpts:
Q) Thanks for taking the time out. Well, we started off April or the new financial year on a volatile note with tariff uncertainty. What is your take on markets for FY26?
A) Investors are grappling with the evolving tariffs scenario which has made it difficult to take a well-considered view on the markets. That said, we are seen some improvement in domestic fundamentals – GDP may have bottomed out in Q2FY25 and the moderation in CPI augurs well for rate cuts, while the recent tax cuts should be positive for urban mass consumption.
The recent market drawdown may have already factored in some but not all potential earnings cuts, especially in globally exposed sectors such as IT services and energy. In such a scenario, large-cap valuations look more attractive than mid- and small-caps, and also present fewer downside risks.
Q) Do you think earnings of India Inc. might take a hit with tariff measures which would in turn result in earnings downgrades?
A) The situation on tariffs is still evolving, but India is relatively well-placed due to its low merchandise export dependence. Most sectors in India derive less than 10% of their revenue from exports to the US with the exception of IT services and Pharmaceuticals.
Electrical manufacturing services, cables and wires and gems and jewellery are other sectors that have some exposure to the US. Therefore the aggregate earnings impact on the large-cap index stocks may not be meaningful. For IT services, while service exports are exempted from tariffs, the sector could see a second derivative impact from a weaker US economy.
Q) The chatter of a global slowdown becomes louder with new tariff measures in place from the US. How would that impact India and global economic growth?
A) India is relatively insulated, but may not be entirely immune to a slowdown, especially for sectors that are globally exposed. A slowdown in a large sector such as IT services could trickle down to weaker consumption, for example, while lower capital availability may impact capex to some extent.
Q) Which sectors should one look for to deploy fresh money amid tariff and global economic slowdown?
A) On a relative basis, we prefer banks, telcos, hospitals and diagnostics. However, in the short-term, consumer staples may be a good hiding place.
Q) After recent correction how is India placed among EM players in terms of valuations?
A) India’s valuation premium to the Asia ex-Japan peer group has fallen from the around 70% a few months ago to closer to 40% today.
This was because of the correction in India and renewed interest in China. Valuations in India in general are higher than the levels seen overseas, but can be justified by superior GDP and earnings growth and healthier return ratios.
Therefore we think that India’s attractiveness has increased recently. We like both India and China among Asian markets, and do not see it as India or China.
Q) What about FIIs? What is the trend you see for smart money moving back to India?
A) India has received net FPI inflows in seven of the last 10 years, among the highest within emerging markets. Therefore the India long-term story is well-understood. In the last six months, we had considerable FPI selling in India largely due to cyclical factors, and to be fair, most EMs saw outflows, as money moved to developed markets.
For money to move back to India, we may need some clarity on the tariff situation globally and eventually some consensus that India is among the more insulated markets; the time frame is this, however, is still evolving.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
