Markets braved shocks due to liquidity support, but risks still looming: Invesco MF's Taher Badshah

The government’s focus on fiscal discipline may also become a headwind if growth continues to moderate. While the market expects the government to stay on its consolidation path, any trade-off with growth could lead to valuation pressure.

Indian markets have remained resilient even in the face of recent global and domestic headwinds on the back of a strong liquidity support, said Taher Badshah, Chief Investment Officer at Invesco Mutual Fund.

The Invesco CIO told Moneycontrol that domestic as well as foreign liquidity has helped markets absorb shocks, leading to optimism about India’s underlying strength, strong balance sheets, contained macro stress and structural stability of the economy.

The CIO said while people cite missing private capex, the private GFCF (Gross Fixed Capital Formation) has grown by 15-16% between FY21 and FY24, which is far better than the 5-6 percent growth rate seen between 2014-2019. However, Taher Badshah acknowledged that the public sector investment continues to outpace the private capital.

“Public sector GFCF was up 22-25 percent during the same period, so yes, private is a bit behind. But it’s not like nothing is happening," Invesco CIO said, adding that capex is less visible as it is funded through internal accruals and focused on asset-light sectors. “It’s not the old-style capex in refineries or steel plants. It’s more in renewables, real estate, power transmission sectors where intensity is lower and credit need is limited," said Taher Badshah.

While the markets have been resilient, some emerging risks may be getting overlooked.

“India suddenly trading at 15x P/E? Very unlikely,” Badshah said, adding that it might happen only if we see some extraordinary, outlier events. Even a sharp dip in domestic fund flow, such as systematic investment plan (SIP) contributions falling by half, is unlikely to cause a collapse in valuations, he said, adding, “Let’s say SIP flows halve, 22x could become 19–20x, but India will not de-rate to 15x.”

NPA Stress

A fresh cycle of non-performing assets (NPAs) could emerge as a key threat, Taher Badshah red flagged. While recent bank earnings have shown early signs of stress, the market does not seem to be disturbed. “Can the NPA problem balloon? That’s not in the market’s mind today,” said the CIO, adding that this quarter’s bank results show some strain but people are taking it lightly.

Commodity Prices

Another factor that the market may be taking for granted is the stability of commodity prices, especially crude oil. “We continue to believe commodity prices will remain benign and won’t create problems. But any flare-up, especially in oil could change that quickly,” he added.

Export-led Growth

Given the soft global demand, India’s export momentum continues to lag, which may have broader implications for growth, job creation and credit expansion. “If exports don’t move, and the US or global economies don’t improve, then job creation and investment both become more difficult,” Badshah said.

He added that India’s economy currently hovers around 6-6.5% growth, but moving to a higher pace would require stronger external demand.

“We need the 6-6.5% to move to 7-7.5% but that will come out of exports and beyond 7-7.5% then we have to do a lot many other things ourselves. But if it is job-led growth then you are somewhat better off. You can have more sustainable and better-quality credit growth and everything around it as well, and it will spur consumption also,” Badshah said.

Fiscal Consolidation

The government’s focus on fiscal discipline may also become a headwind, if growth continues to moderate. While the market expects the government to stay on the fiscal consolidation path, any trade-off with growth could lead to valuation pressure in equities. “Everyone believes the government will not abandon the fiscal path. If they insist on hitting 4 percent even as growth slows, markets could reassess. If FY26 doesn’t deliver double-digit growth, if the festive season disappoints, and the government doesn’t act, that’s a real risk,” Badshah cautioned.