From geopolitical tensions in the Middle East to currency pressures and fluctuations in crude prices, several macro factors are currently shaping market sentiment and capital flows.
In this edition of ETMarkets Smart Talk, Chandraprakash Padiyar, Senior Fund Manager, Tata Asset Management shares his outlook on markets, sectors, and investment strategy in the current environment.
The fund manager believes that while near-term volatility may persist due to geopolitical developments, India’s long-term growth story remains intact.
In such an environment, he suggests that investors should stay disciplined and continue investing through diversified categories such as flexicap and multicap funds, which can help manage risk while capturing opportunities across market segments.
In conversation with Kshitij Anand, Padiyar also discusses the outlook for foreign flows, the impact of crude prices and currency movements, sector opportunities such as banking, and how investors should recalibrate their portfolios amid market swings. Edited Excerpts –
Q) March has been an absolute roller coaster for equity markets not just for India but across the globe. How are you reading into markets – more pain ahead?
A) Middle East geopolitical situation is a serious issue for global supply chains. Our sense is unlike the past events, this time the whole of middle east is directly involved leading to logistics/supply chain issues for businesses across the world. We hope that the middle east region settles down quickly for businesses to function normally. Till the time this event remains, we are cautious on equity investments. Valuations are reaching attractive levels in pockets and one can certainly say that as and when the geopolitical event stabilises we can see a good return opportunity for India equity markets.
Q) IT sector seems to be the worst hit thanks to the AI commentary but with geopolitical tensions rising other sectors have also started to see some rub-off effect. Any sector(s) that are now available at attractive levels?
A) Banks as a sector looks interesting from a risk reward perspective. Other than Banking we believe market is likely to favour bottom up stock picking approach given the rising divergences in earnings delivery relative to expectations and valuations. We do not recommend sectoral/thematic investing for the immediate 12-24 months.
Q) What could be the good, bad and ugly for Indian markets in the near term?
A) We are very constructive on India outlook for the medium to long term given that valuations have normalised and earnings outlook is improving. However, the current Iran conflict can certainly delay earnings recovery. In sum, short term cautious, long term positive.
Q) FPIs have been net sellers in 2025, and the story continues in 2026 may be for a different reason now. The story seems to be changing around the FDI route as India opens up channels for Chinese investment to land into several industries. What are your views?
A) Gross FDI for India for FY26 is at an all-time high. PE divestment over past 12 months which gets clubbed into FDI has led to lower number. We believe FDI is likely to continue to trend higher for India. FPI flows is a function of relative comparison on earnings growth and valuations. FY25 and FY26 India corporate earnings were slowing down and valuations on a relative basis were on the higher side which made logical sense for FPIs to consider other markets.
We think India stands a good chance of attracting flows once again since earnings growth is likely to pick up and valuations on a relative basis also have moderated quite a bit. The only caution is the current Iran conflict which can delay the whole process.
Q) Rupee seems to be hitting fresh lows every week – where do you see the currency headed and how will it impact Indian markets/economy?
A) One should not normalise the current geopolitical crises in the middle east which does put pressure on India trade deficit in the short term leading to some pressure on the currency.
On a medium to long term basis we have consistently displayed discipline on fiscal deficit, debt to GDP for general government, inflation has been stable below the RBI range currently, stable to rising forex reserves with some diversification towards Gold, stable to improving balance of payments. All these factors make us believe that Rupee should behave well given the fundamentals for the economy.
Q) Will Crude@$100/bbl and above hurt Indian markets and macros? We have been making an investment pitch to the world about our macro stability which could be challenged in the near future. What are your views?
A) Crude at $100 is true for all businesses globally. In the past India fiscal and balance of payments situation used to be dependent on crude prices significantly, over the years we have progressed in reducing the reliance specially on account of large pick up in services exports. We do not see a major impact on business if one takes a pessimistic view of crude remaining at $100 for a longer period of time.
Q) How should investors recalibrate their portfolio amid rise in volatility? Any theme/asset classes which they should go overweight or underweight on? (Assuming the person is between 30-40 years)
A) With valuations normalising (though not very cheap yet) we believe earnings growth should flow through to returns over time. Bloomberg consensus expects >14% cagr for Nifty/Sensex earnings growth over the next few years. We are constructive on the market going ahead and hence would advice continued SIP in diversified categories like Flexicap/Large & Mid Cap/Multicap/Focused, Business Cycle etc.
Q) You advise to investors of things which one must avoid doing in the current environment? We have already seen drop in SIP flows by over 3% on a MoM basis.
A) We believe one should keep long term horizon for equity investing, have a balanced asset allocation, seek good advice from experts, and lastly have rational long term return expectations.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
