According to Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, the immediate pain following a 25% tariff is unavoidable. Still, India’s domestic driver especially strong SIP inflows, resilient consumption, and solid long term corporate fundamentals do offer some stability to the equity markets.
He believes that this should be considered as a new normal for the markets.
Divam Sharma has avoided IT sector for a long time now, but keeping a close watch. "The last time we invested in this sector was back in 2023. We are now closely watching the IT companies pack and believe there would be leaders emerging with the adoption of AI," he said in an interview to Moneycontrol.
What is your view on the 25 percent tariff imposed by the US on India, along with the penalties related to trade with Russia?
We believe that this is a continuing negotiation with the US and that the market will gradually adapt this negotiation tactic as a normal soon. We have been taking actions in the interest of the nation and we believe that our exports will adapt to this sooner.
US is important but we have made good relations in bilateral trades with other significant economies. While the US trade deal should happen, not coming under such pressure is the right approach for the nation.
Do you believe the worst of the market reaction will be behind us once the tariff decision is fully priced in, given that the market has been consolidating in anticipation of the final outcome?
The market started bracing for this tariff storm months ago, with volatility and FII outflow activity. While immediate pain is unavoidable, India’s domestic driver especially strong SIP inflows, resilient consumption, and solid long term corporate fundamentals do offer some stability.
We believe that this should be considered as a new normal and the markets will have lesser impact as we go longer in this negotiation.
Do you believe the US Federal Reserve is largely unbothered by political rhetoric, including recent statements by Donald Trump, especially given that the next rate cut may not be possible before Q4 2025?
The Fed remains unbothered by the president’s public pressure. A rate cut seems unlikely before Q4 CY 25. All regards to increase in tariffs, the inflation recently rose to 2.7% from 2.4% in May, and if you look at the contributing factors for this increase, its mainly tariff led. The prolonged tariff war should keep the interest rates higher rather.
Are you bullish on sectors such as real estate and renewable energy? What factors are driving your view?
Yes, we are selectively bullish on these sectors.
Renewable energy should do well as we are seeing private companies installing captive solar units, and India’s overall power demand growing at 7%. There is a significant policy and investment push coming in from centre and states. We are seeing appetite of private investments coming into the sector. The recent FTA with UK also targets clean energy push. With data centres, electronics, manufacturing and private consumption rise, renewables will lead the charge to support these developments.
Real estate should see prolonged appetite in particular pockets and geographies. We should see continuing demand in ultra luxury space. Redevelopment projects also have a bright future. We are seeing a rapid formalization and consolidation in the sector. With prolonged low interest rates, real estate should continue doing well.
Given the cautious management commentary following the June quarter results, are you currently underweight or completely avoiding the IT sector?
The sector has been facing challenges around a weak demand environment, muted guidance and longer deal ramp ups. We have avoided the sector for a long time now, but keeping a close watch. The last time we invested in this sector was back in 2023. We are now closely watching the IT companies pack and believe there would be leaders emerging with the adoption of AI. We expect the deal momentum to pick over coming quarters. Also, some of the large companies are trading at valuations which look attractive now.
Following TCS's recent announcement, do you foresee more job cuts in the IT sector in the near term? What’s your outlook on employment trends in this space?
Yes, we see the changes in technology and adoption in AI leading to a bigger churn in the sector. We also anticipate freeze in hiring and salary hikes in the near term. Given the pivot towards AI, the real effect is yet to truly reflect in the job market. We foresee re skilling pressures would be faced by employees of IT firms more than ever. We foresee more job cuts in the IT sector in the coming quarters.
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