ETMarkets Smart Talk | Limit global allocation to 20% now that the currency will get an X-factor in 2026: Prashant Gupta

India’s Union Budget 2026 may have relaxed outward investment norms and strengthened the case for global diversification, but currency volatility could change the return equation for foreign investors.In this edition of ETMarkets Smart Talk, Prashant Gupta, co-founder of Wealthy.in, explains why the rupee’s recent swings – after reaching 91.2 against the dollar and recovering towards 90 – make the currency the decisive “X-factor” for 2026.

While trade deals with the US and EU, valuation resets in Indian equities and improved Portfolio Investment Scheme limits create new global opportunities, Gupta warns against overexposure.A disciplined allocation of 15 to 20% to international assets, he said, allows investors to capture global growth themes such as US technology without currency headwinds eroding returns. Edited excerpts –

Q) How has Budget 2026 worked out for Indian investors investing in global markets?
A) India’s Union Budget 2026-2027 delivered a mixed but largely supportive outcome for Indian investors looking to global markets, combining relaxed rules on outward investment with a focus on domestic growth.

A major gain for diversification is the doubling of individual investment limits under the Portfolio Investment Scheme (PIS) to 10% of net assets (from 5%), giving retail investors and HNIs significantly more flexibility to invest in US equities or global ETFs without hitting the LRS caps so quickly. For those financing global lifestyles, the Budget provided a major relief by reducing the TCS on overseas remittances for education and medical care to 2% (over Rs 10 lakh) and the tax on overseas travel packages to a flat 2%, although the 20% TCS on large pure equity transfers remains a sticking point.

The Budget prioritises ‘Make in India’ through PLI expansions and an aggressive increase in infrastructure investment to Rs 12.2 lakh crore (an increase of 11%), indirectly supporting global operations through stronger exports.

The mood was less festive among derivatives traders; the Sensex and Nifty saw volatility after STT hikes to 0.05% on futures and 0.15% on options, aimed at curbing retail speculation.

While there were no direct tax incentives for overseas mutual funds, a fiscal deficit target of 4.3% indicates macro stability that should keep FII rates high. Overall, it remains a favorable roadmap for long-term allocators looking to balance a robust Indian core with global satellite positions.

Q) We have two major trade agreements with India: one from the EU and one from the US. The big trigger came in the form of a trade deal between India and the US, which lifted the Indian market. Is this a strong argument for investing in either country?
A) The trade agreements finalized in early 2026 are critical milestones. The India-US pact (February 2, 2026) acted as a major catalyst by reducing the effective tariff wall from a whopping 50% to a reciprocal 18%.

By resolving Russia’s oil friction and shifting energy ties to the US, the deal removed a major secondary sanctions risk, leading to a 2.5% rise in the Nifty/Sensex and a recovery for the rupee to ~90/USD.

This is a strong argument for US-focused Indian exporters (pharma, textiles) who now face lower tariffs than regional rivals like Vietnam (~20%).

Conversely, the India-EU FTA (January 27, 2026) is a slow-burn game, granting duty-free access to 99.5% of India’s export value.

While the US deal offers immediate ‘alpha’, the EU deal is a structural play that forces Indian companies to internalize ESG standards to navigate carbon taxes (CBAM).

For investors, the US represents immediate margin expansion, while the EU offers long-term global resilience.

Q) What about valuations – where do we fit in terms of long-term valuations versus other emerging or developed markets?
A) The Nifty 50 is currently trading at a P/E of ~22.4x, a healthy reset from the 25x+ levels of end-2024. Looking at FY27 estimates, the forward P/E is around ~20.5x, which is in line with the 10-year historical average of 20.2x. India’s ‘quality premium’ over emerging markets has fallen from as much as 80% to roughly 47% (versus a ten-year average of ~57%).

Markets like China continue to trade at ~12 to 13x, but this discount reflects a potential ‘value trap’ as the cooling real estate market drains household wealth.

In the US, while the ‘AI Supercycle’ remains the driving force behind Big Tech, the market has historically been concentrated at ~21.5x forward price-to-earnings ratio, leaving little room for error if growth slows or inflation surprises.

Q) The most important factor to consider is currency headwinds. We have seen a sharp depreciation of the RBI against the USD in recent months. How will that factor into investors considering investing in the US in 2026?
A) Currency dynamics are the “X-factor” for 2026. After the rupee’s 5.5% decline in 2025 (peaking at ~91.2/USD in January), the trade deal fueled a recovery to ~90/USD. For Indian investors, the ‘bonus’ that a falling rupee adds to US yields may not last.

In a scenario where the rupee continues to rise, even a modest 2% move could effectively offset some of the S&P 500’s gains.

As a result, capping the global allocation at 15-20% remains a sensible strategy, allowing investors to capture global tech without undue exposure to currency headwinds.

Q) If someone plans to invest, say Rs 10,00,000 or more than $11,000. What should the ideal asset allocation be?
A) For an Indian investor with a long-term horizon and the ability and willingness to take high risks, the asset allocation that can be considered is:

Asset allocation may change based on the investor’s risk appetite, return expectations and constraints.

Q) Will commodities play a greater role in global portfolios by 2027?
A) While 2024 and 2025 delivered historic gains – with silver and gold hitting record highs, the theme for commodities in 2027 could be return normalization. In this context, commodities can no longer be the ‘aggressive performers’, but return to their traditional role as stability anchors.

While commodities provide essential diversification, they can also bring significant volatility. We saw a clear example of this in February 2026, when silver prices fell by ~36% from record highs of 4.04 lakh/kg to ~2.60 lakh/kg in a matter of days.

This volatility suggests that the most resilient approach for 2027 may be one of balanced coexistence, avoiding risks at both extremes:

The Risk of Zero Exposure: If geopolitical tensions or global inflation remain high, a portfolio without gold or silver could lose its primary safety net during a crisis.

The risk of ‘overexposure’: On the other hand, if the Indian economy maintains its 7.4% growth path and we see an earnings-led recovery, equities could account for most of the market gains. In this scenario, those heavily stocked with commodities may find their portfolio lagging behind.

Thus, by maintaining a disciplined allocation of 10 to 15% in a mix of precious metals, a portfolio can be ‘insured’ against global shocks, without sacrificing the potential growth of the Indian stock market.

For many Indian investors, Multi-Asset Allocation Funds (MAAF) are an ideal way to manage these scenarios. Because these funds automatically rebalance between equities, debt and commodities, an investor no longer needs to time the market.

(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)