Stick to domestic-focused businesses to beat Trump uncertainty, says Nippon India’s Sailesh Raj Bhan

Stick to domestic-focused businesses to beat Trump uncertainty, says Nippon India’s Sailesh Raj Bhan

Investors should focus on domestically driven businesses as global trade disruptions, including US tariffs, create uncertainty, says Sailesh Raj Bhan, CIO of Nippon India Mutual Fund. With the full impact of tariffs on corporate decision-making still unfolding, companies exposed to exports may face significant earnings pressure.

“Even if India isn’t directly impacted by US tariffs, higher levies on Europe could hurt Indian exporters. If 50% of your business is exports and it sees a 10-15% tariff impact, the earnings hit will not be insignificant,” Bhan said in an exclusive conversation with Moneycontrol. He added that second-order effects could emerge as global supply chains reorganize in response to shifting trade dynamics. In such a scenario, valuation comfort becomes key. “Buy stocks that offer the ability to take a year of earnings hit and yet deliver reasonable returns,” he advised.

On the earnings outlook, Bhan expects growth to align with nominal GDP expansion, pegging it at 10-12% over the next two years unless a major global shock occurs. “Profitability as a percentage of GDP remains at 5-5.5%, which is fairly high. Margin expansion that supported past earnings growth has reversed, which caused earnings disappointments this fiscal. Now, they will stabilise and align with nominal growth,” he said.

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Bhan believes the worst of the earnings slowdown is now over. “Revenue growth for FY24 was around 8-10%, while operating profit growth was 25%. But without 10-12% revenue growth, operating leverage disappears, making it hard for earnings to grow at 12-13%,” he explained.

The slowdown was exacerbated by multiple disruptions, including the post-pandemic withdrawal of government support, election-related uncertainty, extreme weather, and weak global exports. “Top 500 company revenue growth was in single digits this fiscal because of these factors. Even large sectors like paints and passenger vehicles have seen weak volume growth. FMCG volume growth has been stuck at 2-3% for a long time,” Bhan noted.

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However, he sees recent tax cuts as a “huge help” that will provide relief to businesses and boost earnings. “This phase of disruption is now over,” he said, reiterating that investors should prioritise companies with strong domestic exposure to navigate the evolving macro environment.