In conversation with Amit Premchandani, Senior Vice President - Equity, UTI AMC

How would a prolonged period of global uncertainty, elevated crude oil prices and rupee volatility affect Indian equity markets over the short to medium-term?

Domestic macro conditions have seen volatility, primarily in currency, as the rupee depreciated meaningfully on account of pressure on capital flows. Timely intervention by the RBI through the launch of a special FCNR deposit window and greater-than-expected inflows through this would provide a cushion on the reserve front. This is likely to improve domestic liquidity and provide further impetus to banks to extend credit. It is also likely to dampen currency volatility.

The inflation trajectory has been much lower than expectations in CY25; however, with a sharp increase in commodity prices, we have seen it moving back to normalised levels recently. Of late, global interest rates have moved up on the back of concerns about the sustainability of fiscal deficits in developed countries and possible debt-funded investments in AI infrastructure.

How would you characterise the current phase of the Indian equity market? Do you expect further consolidation, the beginning of a fresh growth cycle, or a shift towards a more selective, stock-specific market?

The market has seen consolidation and time correction over the last two years, and froth in many sectors has gone down significantly. Large-Caps have underperformed materially over the last two years, as earnings growth in the mega-caps has been muted compared with mid and Small-Caps.

Overall earnings trajectory was impacted by low-inflation-led low nominal GDP growth over the last two years. As inflation inches up, we expect revenue growth to inch up, as reflected in Q1 earnings. Our asset allocation model suggests an increase in allocation to equity as an asset class.

What have Q1 results revealed about the earnings cycle? Are there any signs of recovery, broad-based improvement, margin expansion, or continued pressure in certain sectors?

Q1 FY27 earnings growth has been decent across market caps as well as most sectors. As nominal GDP growth moved to double digits, revenue growth inched up. Margin declines were limited despite a sharp increase in commodity prices. Pressure on margins was visible in cement, FMCG and select automobile players on account of a sharp increase in commodity prices.

Sectors such as Mid-Cap banks, metals, NBFCs and consumer discretionary drove earnings, while OMCs and cement were a drag. The upgrade/downgrade ratio turned positive this quarter, while globally, AI-linked themes faced questions on the return profile of such huge investments. The consumer discretionary sector has started reviving, with improvement in growth across categories.

Do current valuations adequately reflect India’s earnings growth potential, or are investors still paying a premium for growth in certain pockets of the market?

The interplay of a robust macroeconomic outlook with limited linkage to global technological changes will play out. At the same time, global geopolitics has added additional vulnerabilities for equity as an asset class. Global earnings growth has been robust, with Korea and Taiwan leading the way. In this backdrop, earnings growth has been muted in India over the last two years.

This was largely on account of AI-led capex providing tailwinds to global memory chip players; unfortunately, India had no direct plays in that supply chain. India’s premium has gone down over the last 24 months, as earnings growth slowed on a relative basis. A large part of the listed space is in old-economy sectors, while the new-economy-led listings in India are yet to demonstrate significant earnings power.

What is the one piece of advice you would give to retail investors today that could make the biggest difference to their long-term wealth creation?

In the long-term, equity market returns are linked to underlying earnings growth, but in the short-term, the market could trade at expensive or relatively cheap valuations depending on the underlying macroeconomic environment and the emotions of greed and fear among investors. Equity markets have a tendency to revert to mean valuations, and a SIP is a relatively better approach for long-term wealth creation.

On top of that, investors may increase allocation to equity during market corrections. More than 30 years of data analysis suggests that investments in equities at lower valuations have yielded better forward returns. Long-term SIP success depends mostly on three factors: staying invested through bear markets, increasing SIPs during corrections, and investing in the market for the long-term.