Veteran investor Ramesh Damani sees little reason for global markets to cheer the outcome of the upcoming US midterm elections, warning that political uncertainty and the risk of further escalation in the Middle East could keep investors on edge. However, he believes Indian equities could find favour if the AI-driven rally in global markets begins to unwind.
Speaking at NDTV Profit Ignite, Damani said neither a Republican victory nor a Democratic win offered a reassuring outcome for global markets, given the potential implications for US politics, foreign policy and financial stability.
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If Republicans retain control, US President Donald Trump could continue exercising power with limited political restraint, Damani said. A Democratic victory, meanwhile, could trigger a constitutional confrontation if Trump challenges the outcome, adding another layer of uncertainty.
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Damani also flagged the possibility of further military escalation involving Iran, arguing that political setbacks may not necessarily prompt Trump to retreat from confrontation. He cited past instances of US presidents using military action amid domestic political pressure to illustrate the power the presidency holds over decisions involving conflict.
On crude oil, Damani said higher prices would remain a concern but were not necessarily catastrophic for India. Adjusted for inflation, he argued, the economy could absorb oil prices higher than current levels, although the geopolitical risks remained significant.
The more important question for Indian equities, he said, was whether the global enthusiasm around artificial intelligence would sustain its momentum.
Markets in the US, Japan, South Korea and Taiwan have benefited from their exposure to AI-related businesses. India, by contrast, has relatively limited direct exposure to the AI trade. If elevated valuations, excessive debt or a reassessment of AI's growth prospects trigger a correction in these markets, Indian equities could become more attractive to investors, Damani said.
He stressed that he was not making a call on AI itself, acknowledging that the pace and scale of technological change made the sector difficult to assess. Instead, he pointed to India's diversified corporate landscape and what he sees as attractive valuations following the recent market correction.
Taking a longer-term view, Damani said Indian investors should look beyond near-term volatility. He recalled how the Sensex had climbed from around 800 to nearly 80,000 over the course of his investing lifetime, highlighting the scale of wealth creation in the domestic market.
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Damani also suggested the rupee could strengthen over the next three years, arguing that it appeared undervalued on a purchasing power parity basis.
While acknowledging the risk of further declines in the near term, he said the correction had created opportunities across sectors. For long-term investors, he argued, fear of additional market weakness should not overshadow the potential offered by India's diverse businesses.
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