By R Janakiraman
As global economic developments continue to unfold, India finds itself at an inflection point within a shifting macroeconomic landscape. The flux around US tariffs and ongoing negotiations with multiple countries could contribute to near-term market volatility in India too.
June PMI data shows manufacturing activity slowing in most export-driven economies in Asia, signalling broader concerns across emerging markets. However, India stands out with a relatively low risk premium compared to its peers. Approximately 80 percent of Nifty 500 revenues are derived from domestic sources, while the USA accounts for just 5 percent — which reduces the impact from western economic uncertainty.
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In the longer-term, tariff issues could reshape global trade flows and India is strategically positioned to benefit from supply chain diversification, as global firms increasingly seek alternatives to China and Vietnam.
India's cyclical recovery is also gaining momentum, underpinned by a strengthening investment cycle. Corporate capital expenditure is trending positively, though actual outlays may be more conservative than market forecasts.
Consumer discretionary demand too is poised for a rebound. Recent fiscal and monetary stimulus might support a recovery during the second half of FY26. The Reserve Bank of India's (RBI’s) rate cuts and liquidity measures might stimulate risk appetite across sectors, providing further tailwinds to the equity market.
That said, a key risk to equity market performance in 2025 is the continued surge in supply, driven by IPOs, qualified institutional placements (QIPs), and promoter sell-downs — a trend that was seen in late 2024 as well and which contributed to market weakness then.
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With earnings growth for Nifty 50 projected to grow around 10-12 percent in FY26, and given the market's fully valued status, future returns might be driven primarily by fundamental earnings growth rather than valuation re-rating.
Investing requires a long-term view with patience being your greatest ally. A systematic and diversified approach to investing reduces emotional bias, spreads risk, and smoothens returns. Exposure across asset classes, sectors, and market capitalisations might help balance risk and reward.
In this context, hybrid funds like multi-asset allocation funds and balanced advantage funds may be considered as investment options which aim for optimal risk-adjusted returns, offering a blend of relative stability and growth potential.
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The author is CIO at Franklin Equity, Franklin Templeton Asset Management (India)
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