The risk-off mood has been hanging heavy over the Indian equity markets, thanks to Trump's tariff impact uncertainty. Despite US President Trump hinting at a positive possible trade deal outcome, the markets still seem to be spooked by the uncertainty. Vinod Karki, senior VP of equity research at ICICI Securities, sees the potential for a medium-term upswing, despite the lack of optimism.
Stating there is no "euphoria" in the headline index, Karki said. Despite a long-term expected return of 13%, the recent 10-year CAGR has been around 12%, with the current short-term outlook remaining "slightly negative". He pointed to external factors, specifically the US tariffs, as a significant drag on investor sentiment.
"US tariffs are pulling on sentiments more than they should. The export value add is not as much as the overall environment is making it out to be. Some solution will come out, so to that extent, things will be fine," he said.
Consumption And Capex
Karki sees three key areas poised for growth surprises: "domestic investment-related, capex-related and discretionary consumption." He observed that discretionary spending has been the primary driver of consumption, while essential spending has been fading.
"The essential part of consumption has been fading, but the GST cuts will give a boost." Domestic investment-related, capex-related, and discretionary consumption – these three areas I clearly see growth stimulus-based growth surprises," he said.
On a global scale, Karki expects the focus to shift onto capacity building and domestic demand, both of which will necessitate increased investments. This shifting focus is set to drive a robust capex cycle as well.
Valuation And Growth
The Indian equity markets have historically traded at a premium over their emerging market peers, and the issue tends to resurface as concerns about growth crop up.
"Whenever there are growth concerns, it creates confusions. When growth picks up, the issue of valuation will go away. With the stimulus policy makers have given over the last six to seven months, macro demand will pick up in the next six to seven months," he said.
Karki cautioned that along with rising demand, "inflation will also pick up," making it the "best place for stocks that grow on nominal demand."
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