'Not The Time To Pull Out Of Equities'

'Investors should review their portfolios, prioritise flexi-cap mutual funds, and stick to the basics.'

As the global stock market carnage deepens on Monday, Ashish Shanker, MD and CEO, Motilal Oswal Wealth, warns that further declines in equity valuations are on the horizon.

With global uncertainties compounded by tariff-induced economic pressures and subdued domestic recovery, Shanker tells Prasanna D Zore/Rediff that a descent to 21,000 -- which is another 4% downhill from the current level of Nifty 50 -- on the 50-stock benchmark Nifty is not unthinkable.

There's a full-blown bloodbath on global stock markets. What are the major factors driving this panic?

The crisis is primarily fueled by Trump's aggressive tariff actions. These tariffs, though not new, are expansive -- targeting not just China but also countries like Vietnam -- and are reminiscent of the Smoot-Hawley era.

Fundamentally, tariffs act like a tax that boosts government revenue while simultaneously increasing the cost of goods.

In the near term, this drives higher inflation in the US, weakens demand, and makes businesses hesitant to invest, slowing global private capital expenditure.

How are bond yields behaving amid this uncertainty?

Bond yields are falling, but not for optimistic reasons. They are declining because the market is bracing for a softer economy -- or even a recession.

Lower growth expectations are creating an environment where stagflation, characterised by rising inflation and stagnant growth, becomes a real threat to equity markets.

What does this mean for equity valuations globally?

With growth expected to slow and inflation nudging higher, investors are demanding a higher equity risk premium. This leads to lower price-to-earnings multiples and has resulted in a 20-40% correction across many stocks.

Even with these declines, some sectors remain overvalued due to their earlier exuberance. A V-shaped recovery now seems unlikely; instead, we might see a flat or only slightly positive year for equities.

How is India faring compared to other markets in this crisis?

India is relatively less impacted because our export dependency is lower and our trade surplus with the US isn't significant. However, we are experiencing a sympathetic sell-off in the short term.

The broader impact may be felt if the US economy slows, affecting sectors like software services, but India's strong domestic fundamentals should eventually attract investors back.

What about the impact on the Indian economy and its exporters?

It's hard to pinpoint exactly at this moment. India's exports are low relative to GDP and are mostly services. However, if the US economy decelerates, growth in our software services -- which are heavily dependent on the US market -- could slow down.

Overall, we are looking at lower global growth, and India will experience some impact, albeit less dramatically than other emerging markets.

Has this meltdown reset how Indian stocks are valued, especially for exporters and global-facing businesses?

Yes, there has been a fundamental reset. Stock valuations have dropped significantly -- by 20% to 40% in many cases for mid-caps and small-caps. Still, some segments remain relatively expensive even after these corrections.

Investors are becoming more discerning, and we're unlikely to witness a quick, V-shaped recovery.

When do you expect global market stability to return?

I believe it will take about a month for the dust to settle. In the meantime, we'll see numerous bilateral negotiations and adjustments as markets try to gauge the first, second, and third order effects of these developments.

Are falling crude prices and the strengthening rupee silver linings in this environment?

Falling oil prices are definitely positive for India as a major importer, but very low prices can hurt our refined oil product exports.

The rupee's appreciation is more about a weakening dollar across currencies than any intrinsic strength; overall, its impact is neutral.

How are foreign institutional investors (FIIs) positioning themselves?

Currently, FIIs are de-risking and not focusing on India in isolation -- they are more concerned with global uncertainties, especially in the US and China.

Their exposure in India has already dropped from about 21% to 22% to 16%. However, as global conditions stabilise, they could very well return given India's strong domestic fundamentals.

Which Indian sectors appear most attractive, and which should investors avoid?

Private banks seem undervalued, and sectors like metals and consumer staples -- although the latter has underperformed -- could offer defensive value.

Pharma and healthcare also look promising, despite uncertainties from potential US tariffs. I'd advise caution with thematic, small-cap, micro-cap, and mid-cap funds, recommending instead a focus on flexi-cap schemes that allow fund managers to pivot as necessary.

What is your advice for retail investors during these volatile times?

This is not the time to pull out of equities.

Investors should review their portfolios, prioritise flexi-cap mutual funds, and stick to the basics.

Patience and diversification are key; exit strategies should be considered only after carefully assessing the long-term picture.

Could you outline the kind of policy measures that might help stabilise the markets?

While the RBI's upcoming MPC (Monetary Policy Committee meeting scheduled on April 9 whereby the market is expecting a cut in interest rates) meeting might offer some relief, true stabilisation will only come when the global chaos subsides.

The main drivers are geopolitical and trade uncertainties, so even accommodative domestic policies will have limited impact until those external issues are resolved.

Is this crisis an opportunity for India to boost domestic manufacturing?

Absolutely. Regardless of the current market turmoil, India must accelerate its push for domestic manufacturing.

With our vast population and competitive cost structure, we have a unique advantage -- especially in sectors like auto components. This crisis underscores the importance of self-sufficiency and leveraging our strengths.

Do you see the markets falling further before stabilising?

Yes, further declines are possible. We might test the lows we saw in February -- around 22,000 on the Nifty.

A 10% fall from current levels is definitely within the realm of possibility, and 21,000 on Nifty is also not unthinkable (given the panic that has gripped global equity markets).

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