According to Chandraprakash Padiyar, Senior Fund Manager at Tata Mutual Fund, the government’s strategy has been to combine trade measures with productivity-linked incentives (PLIs) and an infrastructure push, a mix that can help offset some of the tariff pressure over time.
He added that much will depend on how trade negotiations evolve and whether tariff-related disruptions begin to reflect in growth or employment data, in an interview with Moneycontrol.
Padiyar also believes the positive impact of the monetary measures taken by the RBI is likely to be seen over the next 12 months. Additionally, if PSU stake sales or divestments gather pace, it could create greater fiscal room for the government to provide further stimulus, he noted.
Do you believe India's structural growth story will remain intact over the next 1-2 decades, even with the risks posed by tariffs?
India’s fundamentals remain steady. Stronger corporate balance sheets, fiscal stability, and RBI’s liquidity support should aid a recovery, with earnings growth back in double digits over the next couple of years. Tariffs are now a global theme, and while they impact many countries, India’s lower dependence on goods exports, especially in listed companies, helps cushion the near-term impact. The real risk lies in a prolonged trade war, which could slow GDP growth and indirectly affect export-linked sectors.
Over the long term, younger demographics, higher urbanisation, better productivity, and better standard of living are all factors that make us optimistic of sustained growth.
Are domestic-focused sectors like financials and consumption still strong investment opportunities?
Financials, especially banks, do present better risk reward. Large private banks are likely to see EPS growth in the second half as NIM pressures ease. Valuations are reasonable, and with asset quality risks contained, there’s room for earnings surprises.
On consumption, high inflation in terms of end product price over the past many years has led to a very large profit pool, leading to much higher competition. We are now seeing a period of consolidation where large listed companies are focusing on reinvesting behind brands with a focus more on volume than price increases. This phase is typically challenging for investors since profit growth is likely to be on the lower side. This sector is worth following for long-term value creation.
In the wake of tariff threats, do you think the world will consider diversifying currency reserves, even though the dollar’s status as a reserve currency is unlikely to change?
The dollar is still the anchor of the global reserve system, but shifts in global trade and geopolitics are prompting central banks to diversify gradually. We’ve already seen a rise in allocations to gold and select non-dollar currencies, partly as a hedge against dollar volatility. In the near term, this diversification will likely be incremental rather than transformational, but the direction is clear—reserves are becoming more multi-polar, even if the dollar stays dominant.
Do you expect Foreign Institutional Investor (FII) flows to stabilize once the initial knee-jerk reactions to tariff issues and geopolitical tensions subside?
If you see, India’s weight in EM portfolios is high, but our premium valuations versus peers like China may keep flows subdued in the short run. That said, with macro stability intact and valuations consolidating, India remains well-placed for renewed interest. Outflows have already eased compared to previous years, and a period of valuation moderation could further support a rebound.
Is there a possibility of fiscal stimulus being introduced for sectors that are likely to be impacted by US tariffs?
The government’s preference has been to combine trade measures with productivity-linked incentives and an infrastructure push, which can offset some of the pressure over time. Much will depend on how trade negotiations evolve and whether tariff-related disruptions start to show up in growth or employment data.
Also, the positive flow-through of all the monetary measures taken by the RBI is likely to be seen over the next 12 months. If PSU stake sale/divestments pick up, then one can make a case for a larger fiscal room to provide stimulus.
Do you believe tech and internet platforms present strong buy-and-hold opportunities right now?
The sector’s long-term potential remains intact, driven by digital adoption, e-commerce growth, and expanding monetisation models. Near-term, however, valuations and earnings visibility vary widely, with global rate movements and regulatory changes adding to volatility. Selective exposure to companies with strong balance sheets, clear profitability paths, and scalable business models makes more sense than a broad-based buy-and-hold approach right now.
Given the high margin and P/E risks in the defence sector, is it better to stay away, even with rising defence budgets potentially boosting stock prices?
The defence business has long lead times with execution spread over many years. Most of the revenue that defence companies are generating is from orders received a few years back. Commodity prices play a large role in the profitability of the sector over cycles. Current P&L in some manner reflects orders booked during relatively higher commodity prices, whereas current commodity prices are on the lower side, benefiting profit margins.
Orders that are being booked in recent years may get impacted if commodity prices go higher in the period going ahead. Also, incrementally private sector is being incentivised to enter the sector, with its share going higher. It is prudent to assume that current very high margins for the PSU defence companies may moderate over the cycle, and hence valuations certainly are trading on the higher side. One needs to be very stock specific on an incremental basis rather than taking a sector view.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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