Daily Voice: India-Pakistan tensions unlikely to rattle markets unless trade routes disrupted, economic centers hit, or FII outflows spike, says Equentis Wealth CIO

Concerns with respect to geopolitical tensions between India and Pakistan remain localised and short-lived unless trade routes get disrupted, major economic centers or infrastructure hit, or FII outflows spike due to risk aversion, said Jaspreet Singh Arora of Equentis Wealth Advisory Services in an interview to Moneycontrol.

Concerns with respect to geopolitical tensions between India and Pakistan remain localised and short-lived unless trade routes get disrupted, major economic centers or infrastructure hit, or FII outflows spike due to risk aversion, said Jaspreet Singh Arora of Equentis Wealth Advisory Services in an interview to Moneycontrol.

Besides, he believes India will become the fourth-largest economy in the world in 2025, and it continues to enjoy strong support from the US and other large nations.

Among sectors, according to the CIO at Equentis Wealth Advisory Services, NBFCs are likely to be preferred bets over banks from a broader allocation perspective. He is underweight on the IT sector with exposures in select names that have the potential to grow EPS over 25 percent in FY26.

Do you believe the market is concerned about rising tensions between India and Pakistan?

Yes, the market does tend to react to rising geopolitical tensions between India and Pakistan. However, how much the market reacts depends on the conflict's scale, time, and potential economic impact.

Historically, these short-term spikes in tension, like the cross-border skirmishes or strong political rhetoric, have caused brief volatility in the stock market, especially in sectors like defense, oil (due to crude sensitivity), and currency markets (INR depreciation).

However, unless tensions escalate into a full-blown conflict, markets usually stabilize quickly once clarity emerges or diplomatic channels engage. In the last two surgical strikes of 2016 and 2019, Indian markets corrected by 2 percent and recovered within a few days. So, these concerns remain localized and short-lived unless we see trade route disruptions, direct impact on major economic centers or infrastructure, and significant FII outflows due to risk aversion.

Besides, India will become the fourth-largest economy in the world in 2025, and it continues to enjoy strong support from the US and other large nations.

Additionally, do you think the belief that India is favourably positioned amidst global tariff wars provided strong support to the market and was a major reason behind the recent rally?

The tariffs imposed on India were around 26 percent, while they were 20-40 percent for most large nations; they were over 100 percent for China. Given India’s proactiveness, the finalization of tariffs with the US is expected to happen in the next few weeks, with the average being much lower than 26 percent. This background has helped Nifty outperform global indices since the start of April, and this momentum may also continue in May.

Do you prefer NBFCs over banks from a broader allocation perspective?

Yes, NBFCs are likely to be preferred over banks from a broader allocation perspective. It is primarily because NBFCs typically exhibit a higher loan growth rate than banks, driven by focused lending strategies, aggressive distribution models, and historically lighter regulatory oversight. In a declining interest rate environment, their cost of funds tends to reprice faster than their asset yields, leading to an expansion in net interest margins (NIMs).

Furthermore, the RBI’s recent decision to reduce risk weights on bank lending to NBFCs will enhance their access to capital and lower borrowing costs, thereby supporting profitability and credit growth. Additionally, regulatory actions aimed at curbing the excessive build-up of unsecured lending have improved risk discipline across the sector, helping to maintain asset quality and contain NPAs.

Does IT still remain a value buy at current levels?

The IT sector derives most of its revenues from the US, which is expected to witness a deceleration in growth rates. Some skeptics have been forecasting a recession in 2025 due to disruptions in trade policies. According to Moody’s, the US GDP, which grew 2.9 percent in 2023 and 2.8 percent in 2024, is estimated to grow 1 percent in 2025 and 1.5 percent in 2026.

The last few weeks of FII buying have resulted in the dollar depreciating 3 percent against the rupee, which will also pressure IT sector earnings growth prospects. So, with revised EPS growth expectations of 5-10 percent in FY26 and PE of 22-26 in the larger IT pack, it may not be a Value Buy, given that Nifty itself, with growth expectations of 14 percent in FY26, is trading at 21x PE. Therefore, we are underweight on the IT sector with exposures in select names that have the potential to grow EPS over 25% in FY26.

Do you expect a strong pickup in earnings in the last quarter of this calendar year?

Nifty earnings are expected to grow around 14% in FY26, with the Jul-Sept quarter exhibiting the best growth given the low base of last year and momentum continuing in the Oct-Dec quarter. Lower interest rates, reduced uncertainty from tariff issues, a good monsoon, and a pickup in consumption will also help in the Oct-Dec quarter.

Which sectors gave you the confidence to make major investments based on the March quarter earnings?

We have significant confidence in BFSI, followed by Consumer Discretionary, FMCG, and Healthcare, focusing on hospitals, domestic-facing pharma companies, Cement, and specialty chemicals.

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