New Delhi – Renewed turbulence in global trade policy is prompting a reassessment of investment strategies in India, according to market strategist Manishi Raychaudhuri, CEO of Emmer Capital Partners. The uncertainty stems from fluctuating tariff levels, currently around 15%, coupled with inconsistent policy signals, creating a challenging environment for investors.
Raychaudhuri, speaking to ET Now, observed that a previously stable tariff landscape has experienced a sudden resurgence of volatility, eroding India’s competitive edge against its ASEAN counterparts. This shift has introduced “chaos and uncertainty” into the near-term outlook for the Indian market. He noted the recent US trade deals with Vietnam, the UK, Indonesia and Japan, and highlighted India’s current reliance on an interim 10% tariff arrangement awaiting a dedicated agreement. A tariff rate comparable to Japan’s 15% would provide much-needed clarity, he suggested.
In response to this instability, Raychaudhuri is advising investors to prioritize domestic growth opportunities over export-focused sectors. He recommends a cautious approach to exporters, instead favoring segments demonstrating alignment between growth potential and reasonable valuations. Specifically, he identified basic materials, select industrial companies, and consumer discretionary businesses as areas warranting consideration, although emphasizing the importance of selective investment. Tata Steel, Hindustan Zinc, and Larsen & Toubro were cited as examples of companies reflecting these preferred domestic cyclical themes.
Raychaudhuri expressed caution regarding consumer staples, citing low growth despite high valuations. He also flagged the IT services sector, anticipating pricing pressures driven by the increasing influence of artificial intelligence on client contract evaluations, potentially leading to margin compression. He indicated that IT stocks might only develop into attractive at valuations in the range of 10-12 times earnings, suggesting a potential for downside or prolonged stagnation.
While acknowledging the potential for some technology firms to differentiate themselves, Raychaudhuri stressed the need for demonstrable reinvention, potentially through strategic partnerships like Infosys’ collaborations in the AI space. However, he cautioned against immediate capital allocation, advocating for clearer evidence of growth or margin improvements before investing.
Foreign investment flows into India are also facing headwinds, according to Raychaudhuri. He pointed to more compelling investment alternatives in other Asian markets offering stronger earnings growth and lower valuations. Until India can close this gap, attracting sustained foreign institutional buying may prove difficult. The sentiment for emerging markets has improved over the last two months, driven by the ability of these economies to provide both fiscal and monetary stimulus, but India’s position remains vulnerable.
The recent US-Japan trade deal, while welcomed by equity markets, was described by Raychaudhuri as a “positive surprise” given the earlier uncertainty surrounding the agreement, particularly concerning automobile exports, which constitute a significant portion of Japanese shipments to the US.
