Amid heightened global uncertainty and volatile market conditions, investors are urged to rethink their portfolio positioning with a greater emphasis on risk management and diversification.In this edition of ETMarkets Smart Talk, Sahil Kapoorhead of wealth products at 360 A Wealthshares a cautious but constructive outlook on stocks, emphasizing that while earnings may be near a bottom, macroeconomic risks, including from rising crude prices and geopolitical tensions, continue to persist.
In this context, Kapoor advises investors to remain underweight in segments such as average valueslong lasting bondsand large-cap US technology stocks, where valuations and risks remain high.
Rather, it highlights the importance of building well-diversified portfolios, staggering investments, and remaining disciplined to deal with short-term volatility while positioning yourself for long-term opportunities. Edited extracts –
Q) March has been a roller coaster ride for the stock markets, not just in India but across the globe. How do you see the markets – more difficulties ahead?
A) Our view on Indian stocks remains neutral overall and not outright bearish. The earnings downgrade cycle appears to be nearing a low point, with FY27E EPS growth expected at around 16%, while India’s valuation premium relative to emerging markets has moderated below historical averages, making the risk-reward ratio increasingly favorable. That said, the recent oil surge linked to the Iranian conflict poses a short-term macroeconomic problem, likely to put pressure on the current account, the currency and certain oil-sensitive sectors.
Investors might be better served by a staggered new rollout over the next six months rather than reacting to short-term volatility. A selective, actively managed approach is likely to be more effective than directional bets.
Q) The IT sector seems to be the worst hit thanks to AI feedback, but with geopolitical tensions rising, other sectors have also started to feel the rub-off effects. Are there any sectors now available at attractive levels?
A) Small caps, as a category, have undergone a significant correction and, in many cases, appear to have moved out of the previous “frothy” zone. Within large caps, IT valuations have moderated significantly, with the sector down around 18-19% over the past year and around 24% from its 52-week high, bringing multiples closer to pre-Covid levels.
Although concerns over AI disruption have weighed on sentiment, the sector is also insensitive to crude prices, which can be a stabilizing factor in the current geopolitical environment.
The pharmaceutical industry is a safer bet and continues to be relatively insulated from oil price volatility given the limited link to crude oil in its cost structure. Similarly, coal and renewable energy-based power utilities could remain structurally supported in a rising oil environment.
Global defense spending could also remain high amid geopolitical tensions, although investors should remain attentive to valuations in these segments.
Q) What could be the good, bad and ugly sides of Indian markets in the near term?
A) Good: The earnings recovery is real, with Nifty FY27E EPS growth expected around 16%, while margins have already shown sequential improvement in recent quarters. Valuations have also moderated, with India’s premium to emerging markets now below its long-term average. The RBI remains accommodative with fiscal deficit narrowing to 4.4% and DII flows (6.9 lakh cr FY26TD) providing structural supply.
Bad: a sustained increase in the price of crude oil above $100 significantly modifies India’s macroeconomic balance. The CAD could widen by around $48 billion (around 1.2% of GDP), putting renewed pressure on the rupee and complicating the otherwise favorable Goldilocks narrative of moderate inflation alongside resilient growth.
At the same time, persistent IFI outflows continue to weigh on market liquidity, while a steady pipeline of IPOs and QIPs absorb additional domestic flows. Despite the recent correction, mid-cap valuations remain high relative to historical averages, leaving parts of the market vulnerable in the event of a further tightening of global liquidity conditions.
Ugly: A prolonged escalation of the Iranian conflict leading to disruptions in the Strait of Hormuz, which accounts for a significant share of India’s crude imports, could trigger a higher surge in inflation, a tightening of domestic liquidity, increased subsidies and a possible fiscal slippage. The most worrying outcome would be the emergence of a risk of stagflation at a time when monetary policy would have limited room to respond with rate cuts.
Q) REITs have been net sellers in 2025, and the story continues in 2026, perhaps for a different reason now. The situation seems to be changing when it comes to the FDI route, as India opens channels for Chinese investments to land in several sectors. What is your point of view?
A) Foreign direct investment flows into India have already shown signs of recovery, increasing around 16% year-on-year to a record $73.3 billion in the first nine months of FY26, led by sectors such as electronics, manufacturing and technology.
The relaxation of PN3 is significant in the current context. China’s cost of capital fell to around 1.8% (from around 3.9% in 2018), while its outward FDI surged to around $167 billion in FY24. Against this backdrop, Chinese FDI in India virtually collapsed, falling to around $3 million in FY25 from around $0.5 billion in FY25. 25. The recovery margin is therefore significant.
It is important to note that IDE and FPI serve different roles. FDI is generally slower and sector specific, and is unlikely to offset portfolio outflows in the short term. However, in the longer term, it can support India’s integration into global manufacturing supply chains, particularly in sectors such as electronics and solar energy, thereby aligning with the broader objectives of the PLI framework.
Q) The rupee seems to be hitting new lows every week – where do you see the currency heading and what impact will it have on the Indian markets/economy?
A) The rupee is expected to stabilize around current levels, assuming there is no prolonged disruption in the Strait of Hormuz. In our view, the worst of the depreciation cycle may be behind us, especially as India’s external balances remain manageable and foreign exchange reserves provide a buffer against excessive volatility.
The most important risk of the portfolio is not the level of the currency per se, but the second-order impact via inflation. If currency weakness keeps imported inflation high, it could delay the RBI’s ability to ease policy, thereby keeping bond yields higher than markets had initially expected.
Q) Will crude oil at $100/barrel and above harm Indian markets and macro-economies? We have launched an investment narrative to the world about our macroeconomic stability, which could be challenged in the near future. What is your point of view?
A) India’s macroeconomic narrative for global investors is based on three factors: fiscal consolidation, a manageable current account deficit, and moderate inflation that provides policy flexibility. Sustained crude prices above $100/barrel could put some pressure on each of these metrics in the near term.
That said, an important structural nuance cannot be ignored: India’s oil tolerance threshold has increased from the pre-Covid level, which was around $80/barrel. This shift is supported by tangible changes in the external balance – notably a sharp increase in services exports, including around $53 billion in GCC-related business services expected in FY26, compared to virtually negligible levels in FY19, as well as a stronger software export base.
Likewise, inflation dynamics provide some protection. With CPI at a low starting point of 2.7% in January 2026, the economy has greater room to absorb temporary commodity shocks. Importantly, crude’s current move appears to be driven by geopolitics rather than demand, suggesting that as the conflict risk premium declines, Brent could normalize around the $65-$70 per barrel range.
Against this backdrop, India’s broader macroeconomic narrative remains intact, albeit with some near-term bruising.
Q) How should investors recalibrate their portfolio amid increased volatility? Are there any themes/asset classes they should overweight or underweight? (Assuming the person is between 30 and 40 years old)
A) In the current context, the emphasis should be on selectivity and deliberate diversification. For medium- and long-term investors, such phases of volatility can offer attractive entry points, provided capital is deployed patiently and in the right segments.
Among domestic stocks, earnings are hitting a low point. Nifty’s EPS growth is expected to accelerate from around 6% in FY26E to almost 16% in FY27E. India’s valuation premium in emerging markets has compressed significantly below historical averages. Historically, this combination precedes strong multi-year returns. Our goal is to spread the new deployment over 6 months, taking into account short-term volatility.
It is also essential to build inflation hedges through real assets and commodities, as well as diversification into global equities and other asset classes. For long-term investors, maintaining a balanced portfolio across asset classes can help them weather short-term volatility while capturing the full return cycle.
The risk of under-diversification at this stage of the cycle is much greater than the risk of over-diversification.
A) Currently, we have three clearly underweight options: mid-cap Indian stocks, long-duration bonds and, in particular, very large-cap US technology stocks. Mid-cap valuations still trade at a significant premium to their 10-year averages. In the US, Mag 7 continues to trade at around 30-32 times forward P/E, while the rotation to non-US markets is in its early stages.
In our opinion, it is absolutely necessary to avoid switching entirely to cash while waiting for “everything to be clear”. Even in volatile phases, systematic allocation should continue, rather than attempting to time the market.
(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
