Daily Voice | Tariff shock nearing peak, not a long cycle; Budget must prioritise foreign capital: Divam Sharma

Divam Sharma is the Co-founder and Fund Manager at Green Portfolio PMS

• Tariff-driven disruption closer to peak than prolonged cycle
• Union Budget must focus on attracting sustained foreign capital
• Domestic picture remains relatively constructive
• Geopolitical temperatures expected to remain elevated
• Defence theme should continue to attract capital and do well
• Earnings growth likely remain sector-specific rather than broad-based

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After former US President Donald Trump’s tariff threat, Divam Sharma, Co-founder and Fund Manager at Green Portfolio PMS, believes that the tariff-driven disruption is closer to its peak rather than the beginning of a prolonged cycle, even though tariffs and sanctions continue to create near-term noise.

Commenting on the Union Budget 2026, Sharma said that to attract sustained foreign capital, the government could explore selective tax holidays or incentives for FDI in strategic sectors.

Another area that warrants reconsideration in Budget is the taxation of equity investments, he added. “Targeting a reduction or complete waiver of short-term and long-term capital gains tax is imperative at this stage, especially for Indians living overseas who are keen to allocate capital back home,” he said in an interview with Moneycontrol.

Do you expect the Trump tariff factor to remain a key challenge for Indian equities and global markets in 2026 as well, considering the threat of fresh sanctions on Russia?

While tariffs and sanctions continue to create near-term noise, we believe the tariff-driven disruption is closer to its peak rather than at the beginning of a prolonged cycle. Beyond a point, both countries and corporations are forced to adapt, and we are already seeing accelerated diversification of supply chains away from single-country dependencies.

From India’s perspective, the domestic picture remains relatively constructive. Consumption trends are stable, macro indicators are supportive, and the country has made meaningful progress on multiple free trade agreements, which should improve export competitiveness over time. Additionally, lower oil import costs remain a structural positive for India’s balance of payments and fiscal dynamics.

Given the global uncertainty, we are maintaining a neutral stance and exercising patience. This approach may test short-term sentiment, but it keeps strategic options open and allows India to emerge relatively stronger as global trade realigns.

Is Trump’s stance on Venezuela likely to further intensify geopolitical tensions in the current year?

Yes, it does add another layer of complexity to an already elevated geopolitical environment. We are witnessing widening disparities in wealth, access to resources, and geopolitical influence that’s both at the individual and sovereign level which naturally heightens friction.

While a full-fledged military conflict still appears unlikely, geopolitical temperatures are expected to remain elevated. This environment may well represent a “new normal” for the next few years rather than a short-lived phase.

Against this backdrop, markets are likely to place greater emphasis on domestic fundamentals—such as local supply chains, consumption patterns, and GDP growth—especially as global flashpoints continue to emerge intermittently.

Despite such global headwinds, do you believe the downside for markets remains limited, making it a stock-picker’s market in the current year?

We are very hopeful for the markets to do well this year infact. Systematic investment plan (SIP) flows remain healthy, corporate fundamentals are broadly comfortable, and liquidity continues to seek assets where long-term value is visible. The Indian economy, in particular, has demonstrated notable resilience.

Sentiment, however, remains the key swing factor. As we see greater clarity around geopolitical uncertainties, easing global tensions, and the formation of new economic partnerships, sentiment should gradually improve.

That said, this is clearly a stock-picker’s market. We have already seen select companies deliver strong performance in the latter half of December and the early days of January, reinforcing the importance of bottom-up, fundamentals-driven investing rather than broad-based market calls.

If you were the Finance Minister, what key measures or initiatives would you like to introduce in the Union Budget?

We are operating in a global environment that is starved for growth and increasingly fragmented geopolitically. In such a phase, attracting capital becomes as important as generating it domestically. These are defining moments for markets, and India has a real opportunity to position itself as a preferred destination for global and diaspora capital.

One area worth reconsidering is the taxation of equity investments. Targeting reduction or complete waiver on STCG and LTCG is imperative at this stage, especially among Indians living overseas who are keen to allocate capital back home.

At the same time, to attract sustained foreign capital, selective tax holidays or incentives for FDI in strategic sectors could be explored. A shift in sentiment at the policy level often has a multiplier effect, and such measures could also crowd in domestic capex as private players gain confidence in the medium-term growth visibility.

Do you think the defence sector could be a good investment bet for 2026?

We believe the defence theme should continue to attract capital and do well. Domestic defence spending is likely to increase, with a clear policy thrust toward indigenisation and a gradual shift away from import dependence.

At the same time, export opportunities are improving as Indian defence manufacturers gain scale, credibility, and cost competitiveness in global markets. This combination of rising domestic orders and expanding exports creates a relatively strong visibility for the sector.

As a result, defence is well-placed to attract incremental institutional as well as retail interest in 2026, provided execution and delivery remain consistent.

Do you expect double-digit earnings growth over the next 3–4 quarters, starting from Q3 FY26?

Earnings growth will likely remain sector-specific rather than broad-based. Double-digit growth is achievable in some areas of the market, particularly where demand visibility is strong.

That said, earnings volatility cannot be ruled out over certain quarters, especially if geopolitical disruptions or supply-side shocks resurface. On the positive side, a lower interest rate environment should provide meaningful support to both margins and demand, especially for capital-intensive and interest-sensitive sectors.

Overall, while the trajectory remains constructive, earnings delivery is likely to be uneven, reinforcing the need for selective positioning rather than blanket exposure.

Are you confident that foreign institutional investors (FIIs) are likely to increase their allocation to India?

While 2025 has not been an especially strong year for India in terms of foreign flows, we believe that sets the base for a more balanced reallocation going forward. India continues to offer one of the most compelling growth profiles among large economies, and global capital ultimately gravitates toward visible growth.

We are already seeing growing interest from non-traditional FII sources, particularly from regions such as the UAE and Japan, and potentially even Russia, which could account for a higher share of incremental inflows over time.

From a macro standpoint, a significant part of the rupee adjustment appears to be behind us, which reduces currency-related hesitation for foreign investors. That said, India is navigating a complex external environment where its balancing pressure from the US on Russian oil imports, while also dealing with shifts in US-based FII behaviour.

In the near term, focus is firmly on the upcoming Union Budget and the extent to which the government is willing to deploy fiscal measures to support growth.