According to Manpreet Gill from Standard Chartered Bank, markets are beginning to react more visibly to inflation concerns and the impact of higher oil prices, while also adjusting to the early phase of new leadership at the US Federal Reserve.
Speaking to ET Now, Gill said, “That is telling us that we are seeing obviously some reaction now to the worries about inflation and what we are seeing in oil markets. I guess we have known for a long time that there would have some first round impact on inflation, but markets had been so far pretty sanguine about that and we are seeing a little bit of pricing in of some of those risks.”
He added that markets are also responding to the beginning of Kevin Warsh’s tenure as Fed Chair, noting that investors often test new central bank leadership. “There is also a long history of markets challenging new Fed governors, so that combination is putting that upward pressure on bond yields,” Gill said.
Despite the recent move higher in yields, Gill believes markets are not yet in a zone of major stress. “At the moment I would say it is an incremental rise especially when you look out to about 10 years on the US Treasury rather than something that is at concerning levels just yet,” he said.
AI Rally Faces a Broader Market Test
The rise in yields has also revived questions around the sustainability of the global AI-driven rally, particularly because the sector relies heavily on long-duration capital and stable financing conditions.
Gill argued that the rally has been supported by robust earnings rather than pure speculation. “What we have seen on the AI rally has also been a result of undoubtedly strong earnings,” he said. “The reality is they have been backed by very-very strong earnings.”
At the same time, he acknowledged that gains across global equity markets have become increasingly concentrated. According to him, the rally in Asia has largely been driven by semiconductor-linked markets such as Japan, South Korea, and Taiwan, while many other regional markets have lagged behind.
“We think the earnings justify that, but if anything we have been taking profit on some of those very narrow trades and trying to really broaden our exposure,” Gill said.
He added that investors are now looking beyond core AI plays toward broader technology and diversified equity opportunities across both the US and Asia. “We just think a broadening of gains is really the way forward from here rather than continuing to chase just those very narrow sub-sectors which have led the rally so far,” he said.
India Seen as a Contrarian opportunity
On India, Gill said foreign flows remain tied closely to global growth expectations and broader risk sentiment, but he believes excessive pessimism around Indian equities may itself create opportunity.
He pointed out that the AI theme has dominated global investor attention, benefiting markets with deeper semiconductor exposure more than India’s broader-based equity market.
“Most major investors already take more of an underweight stance and, of course, we know what the foreign investor flows have looked like, so in our view we lean a little bit against that,” Gill said.
Energy prices remain a critical factor for India, especially given the country’s dependence on imports. However, Gill observed that Indian equities have shown resilience despite geopolitical tensions in West Asia.
“It is interesting that even over the last couple of months through this crisis we saw, of course, that negative impact in March specifically when the shock was new but since then at least in rupee terms Indian equities have actually been a bit more stable or range bound than one might have otherwise expected given the headlines,” he said.
According to Gill, the direction of global bond yields, the strength of the US dollar, and oil price stability will remain key triggers for emerging market flows, including India.
“But in our view there is a lot of pessimism already, so our call to broaden equity exposure across Asia and Indian equities being part of that, is trying to lean a little against that,” he said.
