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Amid heightened global uncertainty and volatile market conditions, investors are being urged to rethink portfolio positioning with a sharper focus on risk management and diversification. In this edition of ETMarkets Smart Talk, Sahil Kapoor, Head of Wealth Products at 360 ONE Wealth, shares a cautious yet constructive outlook on equities, highlighting that while earnings may be nearing a trough, macro risks—particularly from rising crude prices and geopolitical tensions—continue to linger. Against this backdrop, Kapoor advises investors to stay underweight on segments such as midcaps, long-duration bonds, and US mega-cap technology stocks, where valuations and risks remain elevated. Instead, he emphasizes the importance of building well-diversified portfolios, staggering investments, and staying disciplined to navigate near-term volatility while positioning for long-term opportunities. Edited Excerpts –
Q) March has been an absolute roller coaster for equity markets not just for India but across the globe. How are you reading into markets – more pain ahead?
A) Our view on Indian equities remains broadly neutral and not outright bearish. The earnings downgrade cycle appears to be nearing a trough, with FY27E EPS growth expected to recover to around 16%, while India’s valuation premium to emerging markets has moderated below historical averages, making the risk-reward increasingly favourable. That said, the recent oil spike linked to the Iran conflict poses a near-term macro overhang, potentially putting pressure on the current account, currency, and certain oil-sensitive sectors.
Investors may be better served by staggering fresh deployment over the next six months rather than reacting to short-term volatility. A selective and actively managed approach is likely to be more effective than making directional bets.
Q) The IT sector seems to be the worst hit thanks to the AI commentary but with geopolitical tensions rising other sectors have also started to see some rub-off effect. Any sector(s) that are now available at attractive levels?
A) Small caps as a category have corrected meaningfully and, in many cases, appear to have moved out of the earlier “frothy” zone. Within large caps, IT valuations have moderated considerably, with the sector down roughly 18–19% over the past year and about 24% from its 52-week high, bringing forward multiples closer to pre-Covid levels.
While concerns around AI disruption have weighed on sentiment, the sector also carries minimal sensitivity to crude prices, which can be a stabilising factor in the current geopolitical environment.
Pharma is a safer bet continues to be relatively insulated from oil price volatility given the limited crude linkage in its cost structure. Similarly, coal-based and renewable power utilities could remain structurally supported in a higher-oil environment.
Defence spending globally may also remain elevated amid geopolitical tensions, although investors should continue to remain mindful of valuations across these segments.
Q) What could be the good, bad and ugly for Indian markets in the near term?
A) Good: Earnings revival is real, with FY27E Nifty EPS growth expected to be around 16%, while margins have already shown sequential improvement in recent quarters. Valuations have also moderated, with India’s premium to emerging markets now below its long-term average. The RBI remains accommodative with fiscal deficit narrowing to 4.4%, and DII flows (₹6.9 lakh cr FY26TD) providing a structural bid.
Bad: A sustained move in crude beyond $100 materially alters India’s macro equilibrium. The CAD could widen by roughly $48 billion (around 1.2% of GDP), exerting renewed pressure on the rupee and complicating the otherwise favourable Goldilocks narrative of moderating inflation alongside resilient growth.
At the same time, persistent FII outflows continue to weigh on market liquidity, while a steady pipeline of IPOs and QIPs is absorbing incremental domestic flows. Despite the recent correction, mid-cap valuations remain elevated relative to historical averages, leaving parts of the market vulnerable should global liquidity conditions tighten further.
Ugly: A prolonged escalation in the Iran conflict leading to disruption in the Strait of Hormuz, which accounts for a significant share of India’s crude imports could trigger a sharper inflation spike, tighter domestic liquidity, rising subsidy burdens, and potential fiscal slippage. The more concerning outcome would be the emergence of a stagflationary risk at a time when monetary policy would have limited room to respond with rate cuts.
Q) FPIs have been net sellers in 2025, and the story continues in 2026 may be for a different reason now. The story seems to be changing around the FDI route as India opens up channels for Chinese investment to land into several industries. What are your views?
A) Foreign direct investment flows into India have already shown signs of recovery, rising about 16% year-on-year to a record $73.3 billion in the first nine months of FY26, led by sectors such as electronics, manufacturing and technology.
The easing of PN3 is meaningful in the current context. China’s cost of capital has declined to ~1.8% (from ~3.9% in 2018), while its outbound FDI has surged to about $167 billion in CY24. Against this backdrop, Chinese FDI into India has virtually collapsed, falling to just about $3 million in FY25 from roughly $0.5 billion in FY15. The headroom for recovery, therefore, is significant.
It is important to note that FDI and FPI serve different roles. FDI is typically slower and sector-specific, and is unlikely to offset short-term portfolio outflows. However, over the longer term, it can support India’s integration into global manufacturing supply chains, particularly in sectors such as electronics and solar, thereby aligning with the broader objectives of the PLI framework.
Q) Rupee seems to be hitting fresh lows every week – where do you see the currency headed and how will it impact Indian markets/economy?
A) The rupee is likely to stabilize around current levels, assuming there is no prolonged disruption in the Strait of Hormuz. In our view, the worst of the depreciation cycle is arguably behind us, particularly as India’s external balances remain manageable and FX reserves provide a buffer against excessive volatility.
The larger portfolio risk is not the level of the currency per se, but the second-order impact through inflation. If currency weakness keeps imported inflation elevated, it could delay the RBI’s ability to ease policy, keeping bond yields higher for longer than markets had previously priced in.
Q) Will Crude@$100/bbl and above hurt Indian markets and macros? We have been making an investment pitch to the world about our macro stability which could be challenged in the near future. What are your views?
A) India’s macro narrative for global investors has been anchored on three factors: fiscal consolidation, a manageable current account deficit and moderating inflation that provides policy flexibility. Sustained crude prices above $100/bbl could place some pressure on each of these parameters in the near term.
That said, an important structural nuance cannot be ignored: India’s oil tolerance threshold has moved higher from the pre-Covid level of around ~$80/bbl. The shift is underpinned by tangible changes in the external balance — notably a sharp rise in services exports, including roughly $53 billion of GCC-linked business services expected in FY26, versus virtually negligible levels in FY19, alongside a stronger software export base.
Equally, inflation dynamics provide some cushion. With CPI at a low starting point of 2.7% in January 2026, the economy has greater headroom to absorb temporary commodity shocks. Importantly, the current move in crude appears geopolitics-driven rather than demand-driven, suggesting that as the conflict risk premium unwinds, Brent could normalize toward the $65–70/bbl range.
In that context, India’s broader macro narrative remains intact, albeit with some near-term bruising.
Q) How should investors recalibrate their portfolio amid a rise in volatility? Any theme/asset classes which they should go overweight or underweight on? (Assuming the person is between 30-40 years)
A) In the current environment, the emphasis should be on selectivity and deliberate diversification. For medium- to long-term investors, such phases of volatility can offer attractive entry points, provided capital is deployed patiently and across the right segments.
Among domestic equities, earnings are bottoming out. Nifty EPS growth is expected to accelerate from around 6% in FY26E to nearly 16% in FY27E. India's EM valuation premium has compressed sharply below historical averages. That combination historically precedes strong multi-year returns. Our guidance is to stagger fresh deployment over 6 months, given the near-term volatility.
Building inflation hedges through real assets and commodities, alongside diversification into global equities and other asset classes, is also essential. For long-term investors, maintaining a balanced portfolio across asset classes can help navigate near-term volatility while capturing the full return cycle.
The risk of under-diversification at this point in the cycle is far greater than the risk of over-diversification.
A) At present, we have three clear underweight calls: mid-cap Indian equities, long-duration bonds, and US mega-cap technology stocks specifically. Mid-cap valuations still trade at a significant premium to their 10-year averages. In the US, the Mag 7 continues to trade at around 30–32x forward P/E, while the rotation towards non-US markets is only in its early innings.
An absolute must-avoid, in our view, is moving entirely to cash while waiting for the “all clear.” Even in volatile phases, systematic allocation should continue, rather than attempting to time the market.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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