The markets are poised at an interesting juncture. The US stock markets were pounded for two days back to back as concerns about recession gained momentum after the new tariffs were unveiled. Indian markets, though resilient initially, gave in to the global fears as investors weighed the indirect impact of global slowdown. The big worry now is where should investors park their money? Anand Shah, CIO – PMS and AIF Investments, ICICI Prudential AMC says a mix of equity, debt, and some gold is advisable.
Though he is confident of 10-11% growth in Nifty earnings over 3 years, he warns that stock-picking will be more challenging going forward. One of his big worries is that the tech stocks, a high-expectation sector, may fall short of investor expectations. Here is his exclusive conversation with Financial Express.com on Trump tariff, GDP, markets and the art of stock picking.
How do you see the reciprocal tariff announced by US President Donald Trump impacting Indian companies?
Higher taxes on consumption mean either consumers pay more or manufacturers, exporters absorb the cost if they have higher margins. If not, the tariff burden passes on to the consumer translating to higher prices and slower growth in the US. From a manufacturers’ point of view, especially those reliant on US markets, this is a double whammy as both sales and margins could come under pressure. To counter growth challenges in the US, we could see higher Government spending in Europe, China and to some extent in India. While global consumption may rise on the back of supportive Government measures, inflation could limit gains. This makes domestic manufacturers serving domestic markets the biggest beneficiaries, be it in India, US, Europe or China.
Would you say 2025 is a year for resetting expectations?
Yes. If we look back, the past four years have been exceptional. Growth rates have exceeded 30%, and markets have delivered over 20% CAGR. This was a recovery phase, as profit-to-GDP had fallen from 4.8% to 2%, and then rebounded back to 4.8%. Earnings grew faster, and markets performed better.
As a result, the last four years have led to unrealistically high expectations. Now, we are entering a phase where profitability normalization is complete, and from here on, growth rates should align with nominal GDP growth—about 10-11%.
Even if market valuations (P/E multiples) fluctuate slightly, returns should be in this range over a 3 to 5-year period. If P/E multiples drop slightly, returns could still be positive. If they increase, it adds some upside. But, fundamentally, investors need to reset their expectations.
The ability to generate alpha was also easier over the past few years. Beating benchmarks was challenging until 2020, but post that, it became relatively easier due to the broad-based rally. That phase is now behind us.
Stock-picking will be more challenging going forward. Both market beta and alpha are reverting to normal levels, making it tougher to deliver extraordinary returns. This is a shift investors need to acknowledge.
What’s your outlook for the Nifty, do you expect a material shift in earnings outlook for FY26 going forward?
Over a 3-year period, 10-11% earnings growth is a reasonable expectation. The current P/E multiple is neither too high nor too low. So, unless there is a major macroeconomic event, we should expect market returns in this range.
Corporate India and banks are in a strong position today. Over the last four years, corporates have deleveraged, reducing earnings volatility. Banks, which are the most leveraged part of the economy, have improved their provisioning and asset quality. Since both these segments are stable, I don’t see corporate earnings dropping significantly.
Thus, the market should deliver about 10-11% growth, with potential variations depending on macroeconomic conditions.
What are your top sectoral picks from a 1-year, and 3-year horizons? If you can also share why you chose these specific sectors.
We remain domestically focused.
• Our Preferred Sectors include: Banking, select cyclicals, real estate, and some commodities (particularly metals).
•Sectors we are Underweight include: IT, FMCG, and Pharmaceuticals.
Which is the one big opportunity that you see in the market currently that very few are talking about? Why do you think this is so?
Metals, in particular, present an opportunity. China has been the world’s largest consumer and exporter of metals, but this isn’t sustainable. China lacks the raw materials to remain the dominant metal supplier. Meanwhile, the world is increasingly protecting its own metal industries. Over time, China’s competitiveness in metals will diminish due to rising labor and energy costs.
India, on the other hand, has a cost advantage and significant natural resources, positioning it as a potential global supplier of metals. This presents long-term investment opportunities.
Which is the segment of the market that you think will disappoint investors the most this year?
The high-expectation sectors—particularly IT—may fall short of investor expectations.
Even though IT companies generate strong cash flows and return capital to shareholders, they are highly dependent on US demand. If tariffs lead to inflation and a US economic slowdown, it will eventually impact corporate IT spending. We will get better clarity as companies release earnings and guidance, but this is one area where investor expectations might need recalibration.
Given current market conditions, what should investors focus on in terms of asset allocation?
Our consistent message has been that investors should diversify across multiple asset classes as optimal asset allocation is the key determinant to successful investing.
• Multi-Asset Investing – A mix of equity, debt, and some gold is advisable.
• Equity Preferences – While large caps remain the preferred choice, selective mid- and small-cap investments can be considered after recent corrections.
• Gold – Given its high valuation, some exposure reduction may be prudent.
• Debt – Offers stability and remains an essential part of a portfolio.
PMS and AIFs have been gaining popularity. How do you see demand evolving?
These products are inherently riskier and require longer investment horizons.
Over the past two decades, Indian investors have moved from traditional fixed investment avenues to mutual funds. As their net worth grows, some will graduate to PMS and AIFs, which carry higher risk but also offer greater customization.
Despite being the largest fund house in India, we only have a relatively small number of PMS investors, highlighting the early stage of this industry. India is likely to be one of the fastest-growing markets for these products.
From the existing bouquet of products that you have on the PMS side, which is your preferred offering from a three to five-year perspective?
While there are multiple PMS strategies available, the preference is for more flexible approaches, such as flexi-cap funds, rather than concentrated small- and mid-cap strategies. Given the current market environment, our contra and growth leaders portfolio stand out as attractive choices.
Additionally, instead of making a lump-sum investment, a staggered allocation strategy is recommended to manage risk and optimize entry points.
The RBI policy meeting is scheduled for April 7-9, what’s your expectation on interest rates and GDP estimates?
There is no doubt that rate cuts are needed. Growth has meaningfully slowed, and the RBI has already taken steps to increase liquidity.
Barring any unexpected inflation shocks, there should be room for rate cuts in the near future.