In this edition of ETMarkets Smart Talk, Niraj Kumar, CIO of Future Generali India Life Insurance, shares his views on navigating today’s unpredictable and rapidly changing market landscape.
As global uncertainties such as trade tariffs and rising geopolitical tensions — including the India-Pakistan situation — continue to shape investor sentiment, Kumar emphasizes that we are firmly in a VUCA (Volatile, Uncertain, Complex, and Ambiguous) environment.
Despite the noise, he believes India’s strong domestic fundamentals, resilient retail participation, and easing interest rate cycle present opportunities.
His advice to investors: stay agile, focus on quality businesses with earnings visibility, and remain invested for the long haul. Edited Excerpts
Q) Thanks for taking the time out. We are seeing some volatile swings in the markets, thanks to the back-and-forth from Trump on tariffs and now some geopolitical concerns amid tensions between India and Pakistan. How are you looking at all this?
A) Clearly, we are living in a “VUCA” world and volatility is par for the course, but what makes these volatile times interesting is that we can capitalise on the opportunity to acquire good businesses at relatively favourable valuations.
(VUCA is an acronym that stands for Volatility, Uncertainty, Complexity, and Ambiguity)
The Indian equity market has demonstrated resilience, underpinned by strong domestic fundamentals, consistent retail participation, liquidity infusion measures, and some positive earnings momentum in domestic facing sectors like Banking.
While the volatility stemming from geopolitical tensions and global cues like Trump’s tariff-related rhetoric continues to influence Indian markets, we’re seeing a more mature response from investors.
Moreover, we believe India is better placed compared to its Asian peers on tariffs front and is likely to crack a trade agreement with the US sooner than later.
Hence, we see the volatility arising out of trade tensions as an opportunity to build our portfolio around businesses where there is earnings visibility and relative valuation comfort.
Q) It looks like we have entered a low-interest-rate environment. What should the asset allocation strategy be for an individual in the age bracket of 30–40 years?
A) We do not advocate a one size fits all asset allocation for any age bracket. Asset allocation should ideally depend on the risk appetite of the investors and his/her goals and the time he is willing to commit to an investment. From an asset class perspective, we remain constructive on equities as an asset class from a medium to long term perspective.
A low interest rate and easing liquidity environment generally bodes well for equity markets as it provides legs for a sustained equity market rally.
We believe that while a large part of the rally In the fixed income space may have already played out, the interest rates will continue to trade with slight softening bias and thereby fixed income will also offer decent risk adjusted returns.
Q) What is your take on the results that have come out from India Inc., and what are your expectations for the next few quarters?
A) Thus far, Q4 earnings have shown resilience with sectors like NBFC and Banks delivering better than expectations. However, IT and FMCG have been laggards. IT has been marred by tariff related uncertainty clouding tech spending in the US while FMCG has borne the brunt of rise in input cost along with pressure on urban demand.
Going forward, a plethora of factors are expected to lead earnings recovery in FY26 viz. rebound in government capital expenditure, expectation of a good monsoon, likely boost in consumption from income tax cuts announced in the Budget, and lagged impact of an interest rate cut cycle and liquidity infusion by RBI.
FY26 will also be coming off from a low base, hence we are optimistic about earnings growth revival in the coming few quarters.
Q) Gold is back in the limelight as it hit the Rs 1 lakh mark in the physical market. Is it no longer just a safe haven but also a money-making machine? It has been outperforming equities for the past couple of years.
A) Gold has been a money-making machine and not just for the past couple of years. Over the long-term period as well, interestingly enough the returns delivered by gold is at par with that of equity markets.
Gold’s recent performance reflects its role as both a safe haven and a return-generating asset amid global uncertainty, inflation concerns, and accumulation by central banks.
Hence, gold should form a part of an individual’s asset allocation for a long-term perspective. In the near-term however, we believe a large part of the rally in gold might have played out as the bulk of the risk in terms of tariff & geopolitical uncertainty seems to have played out and news flow from here on should be relatively better.
Q) How should one be looking at the small- and mid-cap space in FY26?
A) The mid-cap and small-cap space witnessed a phenomenal run since COVID. However, there has been a significant correction recently with broader market indices declining in excess of 25% from their respective highs.
This correction has resulted in significant valuation correction across many sectors and stock, making them more lucrative. This space should be evaluated from a bottom-up perspective and we continue to find several compelling investable opportunities from a 12-24 month perspective.
Having said this, we definitely believe that investors will have to reset their expectations and not expect the repeat of post COVID performance.
Q) Where is the value in the market after the recent fall we have seen?
A) We reckon the major domestic pivots of Regulatory relaxation, monetary easing, and pick up in fiscal spending will start manifesting in the credit growth and overall thrust in the economy.
Against this backdrop, we are enthused by the opportunities in Banking and discretionary spending space. NBFCs are likely to benefit from the rate easing cycle as they would see NIMs expansion supported by easing cost of funds.
Furthermore, the IT pack has seen a meaningful correction and the valuation there, especially in the large-cap space, has become reasonable. Hence, IT looks poised for a bounce back as and when the dust around tariff headwinds settles.
We are also constructive on the beaten down capital goods & Industrial space as we believe that the execution will see meaningful pick up in several sectors like Power, Defense, and railways.
Q) How are FIIs viewing Indian markets? We have seen some net buying in the past few sessions, but for the month, FIIs have pulled out more than Rs 13,000 crore from the cash segment of Indian equity markets.
A) FIIs have been net sellers in the last 6 months driven by global macro factors such as high US yields and a stronger dollar. We believe the worst of FII selling in India is likely behind but volatility cannot be ruled out, particularly if tariff and geopolitical related uncertainties aggravate.
The recent bouts of net buying reflect India’s long-term structural appeal and India being relatively more immune from the impact of tariffs. A plethora of factors are in India’s favour including 1) strong macro fundamentals, 2) moderation in crude oil prices, 3) India being better placed in tariff war, 4) monetary easing undertaken by RBI and a domestic demand driven economy, and 5) weakening dollar.
Having said that, while the foreign flows may remain volatile in the near term, the domestic institutions and retail participation continue to offer a cushion, reflecting confidence in India’s growth story.
Q) Have you made any changes to your strategy or portfolio to balance out the volatility arising from external factors such as tariffs or geopolitical concerns?
A) We have been agile in our portfolio management and have focused on the domestic facing sectors, like BFSI, Power, Telecom and discretionary sectors including Hotels, Aviation, EMS etc.
We are viewing the volatility arising from external factors as an opportunity to evaluate and add good businesses to our portfolio at reasonable valuations. We believe India is relatively better placed compared to its Asian peers as far as tariffs are concerned and will likely sign a trade agreement with the US soon.
Hence, the tariffs which were initially perceived as headwinds might perculate into opportuinties for India to gain market share in the global trade. We look to benefit from any such opportunity that may arise.
Off late, we have started evaluating the IT pack, particularly the large-cap space, given the steep corrections that the sector has witnessed in recent times.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)