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Below the Expert Insight on impact of US Elections, Budget, Rate cut on Equities and debt market by Mr. Shridatta Bhandwaldar, Head - Equities

"Last month was eventful, with key developments like the Union Budget, the Trump administration's official takeover, and the earnings season. On the global front, the Trump administration's tariff-related noise has increased, but we believe it is more of a tactic to extract concessions rather than a move to disrupt long-established supply chains. While the noise may extend to Europe and BRICS nations, we don’t expect full-blown trade wars due to the deep integration of global supply chains. The U.S. market has seen capital inflows driven by expectations of corporate tax cuts and fiscal reforms, but we may have already seen the peak of this movement. As the new administration’s policies unfold, capital flows into emerging markets like India could reverse, especially where earnings, valuations, and macros are attractive.

Domestically, India’s macroeconomic indicators remain strong, though RBI’s defense of the currency has led to liquidity tightness. The budget struck a fine balance between fiscal prudence and growth, with a focus on both capital expenditure and consumption. The government’s shift toward supporting the mass middle class and lower-income groups, through direct tax benefits and state-level freebies, should boost consumption and, in turn, support private capex. While earnings growth remains a concern, with Nifty companies likely to report low single-digit growth this year, we expect improvement from Q4 FY25 onwards. Large-cap valuations have corrected to fair levels, trading at around 18.5x FY27 earnings, while mid- and small-caps remain 15-20% above historical averages. We believe the broader market may see a time correction over the next few quarters.

Given the current market dynamics, we have moderated our cautious stance. For investors with a one-to-two-year horizon, large caps offer fair valuations, while mid- and small-caps require a longer-term view. Our portfolio remains barbell, with overweight positions in consumer discretionary, telecom, aviation, hospitals, hotels, and select retail on the consumption side, and industrials and auto on the cyclical side. IT remains equal weight. Overall, while near-term challenges persist, the market offers opportunities for incremental allocation, especially in large caps, as earnings recovery unfolds over the next 18 months."  

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