Daily Voice: Whitespace Alpha's Puneet Sharma maintains cautious stance over capital markets segment, sees inflationary risks in near term

Yes, we maintain a cautious stance in the near term due to heightened volatility from global tariff uncertainties and potential geopolitical responses. However, India’s strong macroeconomic fundamentals—robust GDP growth, stable fiscal policies, and domestic consumption resilience—underscore our confidence in the long-term outlook.

For existing investors, we recommend staying invested and strategically accumulating during market dips—especially in sectors aligned with India’s structural growth story —as nearly 70% of Nifty corrections since 2020 have reversed within six months, demanding tactical patience from sophisticated investors. Timing short-term fluctuations is less critical than maintaining exposure to high-conviction themes.

What is your reading of the quarterly earnings season so far? Have you made any changes to your portfolio following the earnings season?

The March-2025 earnings season has delivered select outperformance, with ~40% of Nifty 50 companies surpassing consensus estimates — driven by margin recovery and cost rationalization. This marks a modest improvement from the subdued 4% YoY earnings growth seen in Q2 and Q3 FY25, where input cost inflation and weak rural demand weighed heavily. Importantly, the full impact of global trade slowdowns and tariff hikes will likely materialize in subsequent quarters.

We have not altered our portfolio, as our strategy avoids reactive shifts based on quarterly volatility. Instead, we prioritize a disciplined, long-term allocation framework that aligns with India’s growth trajectory, avoiding knee-jerk reactions to transient earnings surprises or setbacks.

Do you believe that a steady reduction in interest rates is needed to support growth in Indian markets in FY25-26, rather than rushing to front-load rate cuts?

Yes, steady rate cuts are preferable to front-loaded reductions. A phased approach allows businesses to adapt borrowing plans methodically, avoiding abrupt shocks to liability structures. Bulk cuts risk destabilizing the banking sector’s Rs 18 lakh crore held-to-maturity (HTM) bond portfolios and Rs 12 lakh crore MSME loans, which are priced on gradual liquidity adjustments. Sudden rate drops could compress net interest margins (NIMs), currently at ~3.2%, jeopardizing banks’ ability to service long-term fixed-rate loans (e.g., home loans, infrastructure debt).

For corporates, steady cuts provide predictability to refinance Rs 4.5 lakh crore in FY26 bond maturities at optimal rates, while shielding sectors like renewables and real estate from volatile borrowing costs. Conversely, aggressive easing could trigger asset-liability mismatches, particularly for banks with ~40% of deposits in short-term tenures, and amplify mark-to-market losses on existing debt portfolios. Gradualism is not just prudent—it’s imperative to safeguard India’s credit ecosystem while fueling sustainable expansion.

Do you expect some inflationary pressure in India in the coming months due to supply chain dislocation?

Yes, inflationary risks are elevated in the near term, driven by supply chain disruptions and domestic factors like erratic monsoons and rising crude prices. Food inflation remains vulnerable due to logistics bottlenecks, while fuel costs could spike further if geopolitical conflicts escalate. However, core inflation (ex-food, fuel) is likely to stay subdued (~3.5%) as demand moderates and RBI’s cautious rate trajectory (50 bps cuts in FY25) anchors expectations. For markets, this implies volatility in rate-sensitive sectors, though structural themes — backed by policy spend—may offset input cost pressures. Investors should focus on quality assets with pricing power and monitor RBI’s data-dependent stance to navigate this phase.

Have you started taking exposure to PSU stocks and the auto space?

Our investment approach remains steadfastly market-neutral and sector-agnostic, as dictated by our mandate. Critical to this discipline are safeguards like zero net exposure across all holdings, ensuring long and short positions neutralize market risk, and a liquidity-first focus that restricts allocations to high-volume, large-cap names Our edge lies in alpha generation through volatility capture, not sector rotation.

For example, elevated volatility in the auto sector (Nifty Auto IV at 28%) might prompt tactical derivatives trades, but these are executed without directional bias and unwound swiftly. This approach ensures returns remain uncorrelated to market cycles, anchored instead to our proprietary models’ ability to exploit micro-level inefficiencies. In essence, our strategy prioritizes precision and discipline over speculation, adhering rigidly to our core philosophy of delivering consistent, market-agnostic outcomes.

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.