With much of the recent rally concentrated in a limited number of names and valuations pricing in strong growth, he says investors should temper return expectations, revalue global allocations and focus on markets that offer better risk-reward dynamics. Edited excerpts –Q) How has Budget 2026 worked out for Indian investors investing in global markets?
A) Interest in global markets has increased in recent months, largely because Indian equities have remained within a range over the past eighteen months.
The initial market reaction to Budget 2026 was muted as the government reiterated its emphasis on long-term policy continuity and capacity creation rather than short-term stimulus.
However, when we look at this in a forward-looking context, much of the adjustment seems to be behind us. Earnings expectations are now being revised upwards, and both fiscal and monetary policies are gradually becoming accommodative. This combination should support a recovery in earnings growth in FY27. With valuations at a more comfortable level, India is once again positioned to return to its historical trend of relative outperformance, strengthening investment opportunities against global peers.
Q) India has signed two major trade agreements: one with the EU and one with the US. Does this strengthen the arguments for investing in either country?
A) For India, these agreements are clearly positive from a sentiment and risk perspective. The India-US trade framework, which arises from the India-EU agreement, significantly reduces geopolitical and tariff-related uncertainties.
Our estimates suggested that a hypothetical 50% rate shock could have reduced India’s GDP growth by a few basis points. Yet exports fell by only about 5% in the months following the introduction of tariffs, largely due to strong momentum in electronics exports, which continue to grow by more than 100% year-on-year.
The more meaningful benefit will likely accrue to labor-intensive industries such as footwear, textiles and jewelry, which saw some contraction after the tariffs were imposed.
A recovery in these segments would be supportive from an employment and consumption perspective. That said, our assessment indicates that the direct earnings impact of tariffs on Nifty 50 companies would have been limited.
Therefore, we do not expect significant upward revisions to index-level earnings on this basis. Nevertheless, the removal of tariff excesses is a clear positive benefit for India.
For the United States, India represents a relatively small part of the import package. Moreover, US equity valuations remain high.
Comparatively, Indian equities continue to offer a superior risk-return profile compared to US markets.
Q) How do Indian equity valuations compare to other emerging and developed markets over the long term?
A) India’s valuation premium over both emerging and developed markets is structural rather than cyclical. Historically, Indian equities have traded at a 40-60% premium to the MSCI Emerging Markets, reflecting higher nominal GDP growth of 10-11%, earnings growth of 12-15% and a steadily increasing share of domestically funded capital.
At around 18–22x one-year forward earnings, India trades at a premium to most emerging markets and broadly in line with the US, while still being more expensive than Europe (12–14x) and Japan (14–16x).
This premium limits the opportunities for multiple expansion in the short term, but also reduces the risk of sharp valuation corrections.
As a result, long-term returns in India are likely to be driven by continued earnings growth and capital formation rather than a revaluation.
Q) How should investors think about currency headwinds given the recent depreciation of the INR against the USD?
A) For dollar investors, the depreciation of the INR has recently improved returns on assets. However, we expect the coming year to be different on both fronts, for US equities and INR.
US stock valuations remain elevated, and much of the recent rally has been driven by a limited AI theme, which we believe is unlikely to maintain the same momentum going forward.
On the currency side, the recent INR devaluation was mainly driven by capital outflows rather than current account stress.
India’s external balances remain comfortable, and on a fundamental basis the INR appears undervalued. As earnings growth normalizes and capital flows stabilize, we expect outflows to reverse and currency pressures to ease.
Q) What should be the ideal asset allocation for an investment of ₹10,00,000 (approximately $11,000) or more?
A) Asset allocation should always be tailored to the investor’s age, risk tolerance, time horizon and tax considerations. Strategic allocation decisions should be based on long-term return characteristics and not short-term market movements.
Historically, Indian equities have consistently outperformed other asset classes over long periods of time. In light of this, we continue to recommend maintaining a relatively higher allocation to Indian equities.
Other asset classes may also be included, but primarily as low-beta diversifiers rather than as alpha-generating core components of the portfolio.
Q) Will commodities play a greater role in global portfolios by 2027?
A) We do not expect a broad increase in commodity allocation. Although interest in gold and silver has increased recently, these markets have already undergone sharp corrections after strong rallies.
The increased role of commodities appears to be structural in nature, with investors, including central banks, mainly using commodities to diversify their portfolios.
Global growth is expected to remain close to the long-term trend in 2027, suggesting that risk-free positioning is unlikely to dominate portfolio construction. As a result, we do not expect a sustained or broad rally in commodity markets.
(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)
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