According to Vikas Gupta of OmniScience Capital, there is a risk for the market in the near term due to the potential India-Pakistan war. Hence, there is a possibility of a near-term negative reaction of the market due to some FIIs and domestic investors trying to exit.
However, any correction is unlikely to be sustained, since it has mostly been observed that during conflicts in strong economies, the markets remain resilient. Hence, the Chief Investment Strategist at OmniScience Capital believes the fundamentals are getting stronger for Indian companies and thus crossing previous highs is quite likely.
For FIIs, he believes, "India becomes an 'inevitable' market." "It is the only large emerging market with strong balance sheets, large forex reserves, and extremely high growth rates," he said.
After forming a tariff bottom and given the strong fundamentals, do you see the market gradually moving toward its record high sooner rather than later, or do you expect rising India-Pakistan tensions to act as a major risk in the short term?
There is definitely the risk of a near-term event, the potential India-Pakistan war. Some strong action is likely to take place in the next few days to weeks. There is a possibility of a near-term negative reaction of the market due to some FIIs and domestic investors trying to exit. However, it is unlikely to sustain since, mostly, it has been observed that during conflicts in strong economies, the markets remain resilient.
Wars also entail excess spending by the government, which gives a near-term boost to the economy, which also results in a positive market reaction. In any case, the fundamentals are getting stronger for Indian companies and thus crossing previous highs is quite likely. We are hardly 7 percent away from the previous high, and this could happen in a few sessions.
Do you firmly believe that US tariffs will be a major growth driver for India?
Given the relative differential between China and India tariffs, or even compared to some other export-oriented countries on which the US has put high tariffs, the net effect on India is as if there was an actual preferential treatment given to India. We have seen the iPhone production commitment of shifting the US-destined production to India from China. This is not surprising given the high tariff differential. However, even Samsung is considering shifting from Vietnam to India, where the differential is much less. This shows that there is some kind of momentum favouring India.
Also, it is likely that an India-US trade deal is nearly done. The above could be an indicator of that. The actual announcement of the deal could lead to more production shifting into India in the near to mid-term and new FDI in the longer term. This could definitely be a strong growth driver given that India-US have agreed on a $500 billion trade by 2030. This would mean approximately $250 billion in exports from India to the US, given the balance of trade commitments. Current Indian exports to the US are slightly less than $100 billion. This would be a nearly 20 percent CAGR if achieved. The primary contributor to achieving this would be production shifts from China to India.
Do you expect lower double-digit earnings growth for FY26, and could it be subject to major downside risks?
We do expect lower double-digit to mid-teens kind of earnings growth for FY26. The risk to this is a global slowdown due to the US tariffs, which would impact our exporters. Despite the above China to India shift, the US tariffs create uncertainty for US businesses in terms of both the top and bottom line. This makes it likely that they would postpone discretionary spending. For example, IT could face delays in getting the more strategic projects from the large US companies. There would be similar uncertainty for other non-US large companies, which could induce a global slowdown and could affect Indian exporters too.
However, this should be short-lived, and if the US faces a supply crunch, our other industries,s which earlier couldn’t export to the US, might find it possible to export due to the differential tariffs and a potential deal.
Do you anticipate a significant pickup in government capex in FY26?
Government capex has already been announced in the budget. However, given the potential India-Pakistan war and especially the lacunae which come into focus to the government due to a war-like situation, would accelerate government spending on Defence and dual-use projects, such as, roads, railways, ports, airports, dams, canals, power, nuclear technology etc. This could accelerate the government capex over not only FY26, but the next few years.
Do you observe consistency in FII inflows to India compared to other emerging markets?
India is the only large emerging market with strong balance sheets, large forex reserves and extremely high growth rates. This leaves very few alternatives for FIIs and it becomes an “inevitable” market for them.
Do you think banks and NBFCs remain attractive, even after the recent rally?
We think the most attractive are PSU banks and housing finance companies. The private banks and some specialized infrastructure NBFCs remain attractive. However, consumer NBFCs are likely fairly valued and hence not so attractive.
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