This is not the time to be patient
As markets remain on the rise against the backdrop of growth in West Asia, Rishi KohliChief Investment Officer of Jio BlackRock AMC explains -Puneet Wadhwa Given the current uncertainty, a further decline of about 5-10 per cent is possible if the conflict drags on, but nothing significant beyond that is expected, an interview meeting in New Delhi said. Edited excerpts:
Is it the right time to invest in the stock market?
Valuations are now reaching a level where they are starting to look interesting. However, whether investors should fully get involved is another question as the (geopolitical) situation is still developing.
When the war began, most people thought it would end within a few days. This has not happened. Our view was that it could drag on because Iran has been preparing for such a situation for a long time. For him the question was not if, but when.
Because of that preparation, the reactions we are seeing are not entirely surprising. The conflict may last a few more weeks, as some expect, or it may last longer—we don’t know. Investors should remain cautious and adopt a wait and see approach.
From current levels or slightly lower levels, investors should consider deploying some capital depending on the liquidity they have, he said.
Could the current uncertainty create a Covid-like opportunity for investors?
This is probably closer to the Russia-Ukraine phase than the COVID situation. The market’s behavior has been similar to earlier periods, with sideways ups and downs over the past 18 months. Even the crude spikes and sector-wise spreads look similar. The Covid decline was extremely rapid and widespread across all sectors. That kind of deep reform is not my base case right now.
If the geopolitical situation escalates significantly – for example if other major countries join in – the eventual recovery could be deeper. Otherwise, the current setup is more comparable to the Russia-Ukraine environment.
Moreover, unlike the Covid period where almost all sectors fell simultaneously, this time there is a much wider spread between sectors. This means that stock selection will matter more than just calling the market bottom.
Do you think the war has dragged on so long that market sentiment has been significantly affected?
Yes I think so. That’s why you have seen the market reaction in the last few days. A rapid rally in crude oil – from earlier highs and still hovering around $100 – is not something anyone wants to see. From that perspective, it’s a tail event. Market price uncertainty. When uncertainty increases, markets become nervous.
Two events surprised many participants: Iran fired on neighboring friendly countries, which few people expected. The pace of rise in crude oil was faster than expected.
Additionally, disruptions related to shipping routes mean that even if things stabilize soon, it could take two months or more to clear the supply backlog. So even if the conflict stops in a few weeks, the total disruption could last two and a half to three months. This will definitely have some economic impact.
India’s macro environment has overall been quite strong, he said, even though the market has not delivered returns in the last 18 months. The outlook was becoming more interesting, but the current situation could delay that positive cycle by about a quarter.
To what extent are markets estimating weak corporate earnings for the next two quarters of FY2027?
There will be some impact and some areas will be clearly affected. Earlier, we were expecting around 12 per cent earnings growth for the next financial year, but now it may come down slightly to around 9-10 per cent.
Our earlier expectation was that after March, the market could enter a very bullish phase for the next 18 months, with April being a seasonally strong one. I still largely remain in that slightly bullish camp, but the timeline may now be delayed by about three to four months.
Given this backdrop, has the market entered a bearish phase?
No, I do not think it is bearish time in the market. Even if the situation prolongs, Nifty may fall further by 5-10 percent. If the conflict does not worsen much, the market may go down by about 1-2 percent from the current level.
We have already seen a decline of about 10 percent from the peak, and probably the last 3-4 percent of that decline was due to this uncertainty.
So, if the conflict drags on, a further decline of around 5-10 per cent is possible, but I don’t expect anything much beyond that. Overall, the stance should be neutral to slightly bullish based on investor comfort, liquidity and valuations and technical indicators.
Which sectors or market segments appear to be more secure?
For beginners, the best starting point is broad market exposure through funds. The core allocation should generally include large-cap funds and flexi-cap funds. In terms of market capitalization preference, earlier my view was large-caps compared to midcaps and mid-caps compared to small-caps.
Given the current uncertainty, I would still prefer large-caps. Some small-caps are starting to look attractive after the recent decline. Mid-caps and small-caps can be considered selectively, but initially it is better to access them through flexi-cap or multi-cap funds. Perceived risk may increase as uncertainties decrease.
To what extent have markets taken into account broader risks such as inflation, gas prices and the deficit?
This appears to have had an initial impact on price. Markets are already projecting crude oil prices to average $10-$20 higher for some time. However, if the disruption continues for longer, the damage could be greater.
The potential macro impact on indicators such as inflation, fiscal deficit and current account deficit could be between 30 basis points and 100 basis points. The exact outcome depends on how long the conflict continues.
Have you lowered your year-end targets for Sensex and Nifty?
On the macro model side, the target may be slightly lower, mainly due to the delay in the recovery cycle. At this stage, it is still too early to revise estimates significantly. Markets sometimes recover faster than expected, so it would be better to wait a few more weeks before drawing conclusions.
Are you seeing redemption pressure from investors? What is the extensive industry experience?
When markets fall there are always some strong reactions. Some retail investors exited and some SIPs slowed down or stopped temporarily, which is visible in the recent data. However, because we are launching new funds and are relatively new mutual funds, we are still seeing net inflows overall.
Across the industry, categories like large-cap and flexi-cap funds have generally seen net inflows. That said, there has been some decline in SIP flows in recent months, as was the case in January-February last year.
Retail sentiment naturally reacts to market movements, but overall investor awareness and education is much better than it was ten years ago.
Equity has not performed very well in the last 12-18 months, doesn’t this weaken the case for investing in this asset class?
Not necessary. This is a normal part of the market cycle. Over the long term – whether 10, 20 or 30 years – equities have generally delivered strong returns in India. Gold has also given good returns over some periods, but equities offer much greater diversity across sectors, styles and strategies. Investors can adjust allocations, rotate sectors and adopt tactical strategies – something that is not possible with a single asset like gold. There have been periods when gold gave little or no returns for many years.
Therefore, equities will always play an important role in the portfolio. Given that the last 18 months have been weak in terms of valuations, earnings and technical trends, the outlook for the next 18 months is actually becoming more attractive.
