ETMarkets Smart Talk: Retail investors should avoid global markets, India offers better long-term value, says Harendra Kumar

Thanks for taking the time out. February was a weak month for the Indian market, but March looks stable. How are you viewing the markets?

It’s important to delve a bit into the origination of the correction before we comment on the future trajectory of the market.

First, the onward journey of the market after the election result last year was an over extension of the bullish sentiment without the underlying basis.

The mandate was not emphatic, and the political capital of the incumbent government was fractured. The government spending had slowed down and simultaneously liquidity was tightened.

Live Events

What broke the proverbial camel’s back was the Trump win which sent the FIIs scampering to safety and mauled the overvalued INR. This led to the purging of the excesses that was visible to all without exception.

But thankfully, all variables but one is on the mend. The continuous string of victories in the state elections means that the government has salvaged most of the lost political capital, spending has resumed, and liquidity has become accommodative.

The only variable is tariffs – which should settle during the course of the year. So we are in a much better position than we were in the last six months. INR has stabilised and flows will return emphatically in the next 12/18 months.

We are sanguine on earnings recovery and markets returning good outcomes as the year progresses.

What is your view on the US Fed decision? Do you see US markets topping out as there are signs of a slowdown?
The US Fed is being prudent and needs to keep some ammo in the event of a slowdown. The valuation cushion is missing for US markets. The water could get choppy if the outcomes of tariffs or negotiations take longer than anticipated.

We are also in the last month of the financial year. How do you see fund flows for Indian markets in the next financial year? Has the valuation overhang corrected?
Years of excessive outflows has seen reversals which have been equally vicious on the re-bound. Typically flows resume when the INR bottoms. So yes, the ensuing 18 months things will be better than the last one year.

Valuation is more reasonable and has been very reasonable for large caps. The damage to the headline Nifty in the event of a correction will be milder than the broader market.

We have seen double-digit gains in Gold & Silver. How should investors approach precious metals in the next financial year? Is it time to increase allocation or book some profits?
As a diversification strategy, some allocation is good. Taking the view that precious metals will continue to outperform in a big way from here is over optimistic. Long-term investing in Indian Equities which generate a reasonable RoE will be more accretive.

Do you recommend retail investors diversify into global markets? What should be the ideal portfolio allocation?
An emphatic NO. There are not many options in the global market. Europe is in doldrums, China will remain a tactical and re-bound trade and timing is always going to be difficult.

The US is expensive and a recession outcome is being discussed now and the market is very toppish.

What are the big themes investors can track for the next financial year?
The attempt to crowd-in Pvt Capex did not meet with much success as the Govt Capex was in areas that more beneficial for an ecosystem that did not catalyse the private sector – which is typically operating in the traditional sectors.

An acknowledgement of this has led to a very important pivot by the government towards consumption in this Budget. Continued stimulus on consumption to lift capacity utilisation will be required for 2 or 3 years.

So tailwinds for consumption will be strong in the medium term. Consumer discretionary in its myriad form will revive.

This is not to say that the government has lifted the pedal from Capex – only that the character of the Capex has changed towards Urban Infra, Shipping Nuclear etc.

We have found some stability, but are there any other factors that could trigger another round of selling?
The geopolitical playbook is currently being re-written and is still ambiguous. The shape and form of world order is unknown and will be markets on tender hooks.

The aftershocks of this calibration will be felt and hence it will be sometime before the markets will settle into a rhythm and direction.

The INR is a big gauge of how foreign institutional investors view the global landscape and India’s ability to withstand global shocks and it has still not found its levels.

Looking at the December quarter results coupled with the tariff hikes seen in the past two months, what is your outlook for the March quarter for India Inc.?
The March quarter numbers will definitely be better as the reasons that led to the slowdown have been reversed.

Govt spending has picked up, the political capital has seen some repair after the state wins, liquidity has been addressed and lower inflation and rate cuts will help.

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