Daily Voice: De-escalation of US-China tariff war should commence over next few months, market upside likely to continue, says this CIO of Spark Capital PWM

Deepan Kapadia is the Chief Investment Officer – PMS at Spark Capital PWM

On the US-China tariff war de-escalation possibility, Deepan Kapadia of Spark Capital PWM expects common sense to prevail, and believes de-escalation of the tariff war should commence over the next few months. This will replace a steep hike in tariffs with moderate hikes via bilateral trade agreement negotiations, he said in an interview with Moneycontrol.

He sees upside for the Indian market as it has held up relatively well in the past few days versus other markets, backed by continued capex and the hope of a normal monsoon.

Among sectors, the Chief Investment Officer – PMS at Spark Capital PWM believes IT sector valuations do indicate that the bottom is near or maybe 1 more quarter of pain. "The clients are being cautious, but IT companies have not yet seen any major ramp downs/deferrals yet," he said.

Even after a stellar run over the past couple of weeks, do you think large banks are still trading at below-average valuations and offering above-average profitability?

Few large private and public banks are currently trading below their long-term valuation averages, which is pulling down the overall index valuation. As a result, the index is still trading below its 10-year average. While significant valuation re-rating is unlikely, their robust growth outlook supports the potential for superior returns at current multiples. Given the current valuation and business momentum, the risk-reward remains favourable.

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Deepan Kapadia

Chief Investment Officer – PMS|Spark Capital PWM

Considering the prevailing optimism, do you expect the equity markets to hit a new high sooner rather than later this year?

Although uncertainties due to Trade tariffs continue, developments around trade negotiations are giving confidence to investors. As a result, optimism will lead to selective buying across sectors. Also, India is less impacted by tariffs and hence is in a much better position than other countries.

India remains best placed vs peers as growth differentials remain favourable, crude oil prices soften, RBI & GOI turn pro-growth, and headwinds through exposure to global trade war vs peers are lower. We see upside for the Indian market, as it has held up relatively well in the past few days versus other markets, backed by continued Capex and the hope of a normal monsoon.

Do you believe IT could be a good defensive bet?

IT as a sector has seen a weaker earnings quarter, but valuations do indicate that the bottom is near, or maybe 1 more quarter of pain. All IT Services companies witnessed an improving discretionary environment until the onset of tariff-led uncertainties, suggesting that there was an increasing propensity to spend. We anticipate a growth rebound once things stabilize, especially given that we've experienced three years of reduced spending.

In the near term, we can see headwinds from heightened uncertainty, which could impact discretionary spending, leading to near-term challenges. The clients are being cautious, but IT companies have not yet seen any major ramp-downs/deferrals.

Apart from banking, which has been in the driver's seat this month, which sectors do you believe will drive the market rally from here?

India’s manufacturing progress will continue, linked to its ambition and ability to attract investment in manufacturing. We see an upside in sectors that are domestic economy facing, manufacturing-related, and import substitution as key participants in the future rally. Along with this, Financials will continue to outperform based on reasonable valuations and expectations of revival in credit growth in the second half.

Do you expect a de-escalation in the US-China tariff war in the near future?

We expect common sense to prevail, and de-escalation of the tariff war should commence over the next few months. This will replace a steep hike in tariffs with moderate hikes via bilateral trade agreement negotiations.

Do you foresee India growing at more than 6.5 percent in FY26?

The path to India’s strong and sustainable GDP growth has been laid over the years with a focus on domestic manufacturing and import substitution, and emerging as an export hub, being the key focus areas. From Invest India to Make in India and finally PLI schemes for various sectors are strong drivers for future growth.

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