Expert View: As the Indian stock market grapples with the tariffs imposed by US President Donald Trump, Rajesh Cheruvu, MD and Chief Investment Officer at LGT Wealth India, believes that effective policy intervention will be key to ensuring that tariff shocks don’t derail growth momentum. While the Indian macroeconomic outlook looks promising, Cheruvu believes it’s not enough to tide over the tariff-related disruptions.
While the macro picture looks promising, do you think it’s enough to tide over Trump’s tariff woes?
While the broad macro indicators are supportive — rural consumption is reviving after a subdued phase, aided by a good monsoon, lower inflation, and accommodative monetary conditions — these may not fully offset the drag from tariff-related disruptions. The potential export impact, estimated at around USD 45 billion, is significant, particularly for labour-intensive sectors. However, the cushion from lower crude prices provides both the Centre and the States with fiscal space to support affected industries through targeted incentives and policy measures. In that sense, the macro picture provides resilience, but effective policy intervention will be key to ensuring that tariff shocks don’t derail growth momentum.
How do you see the Indian stock market performing in the rest of 2025?
Over the long history, Indian equities have delivered returns broadly in line with earnings growth and nominal GDP trends, barring some cyclical variations. Currently, we are in a phase of earnings moderation — visible across multiple sectors over the past 4–6 quarters — and that has naturally reflected in market performance. In the near term, this mismatch between valuations and earnings could limit meaningful upside for the indices.
That said, the bigger picture remains constructive: inflation has fallen to multi-year lows, fiscal and monetary policy remain supportive, and consumption trends are improving. Valuations, on a forward basis, are now closer to or below long-term averages, which provides a cushion. If earnings revive as the next business cycle takes hold, markets should have the room to move higher over 2025.
In short, while timing peaks and troughs is always difficult, the environment suggests resilience with pockets of opportunity. The key for investors is to maintain discipline in asset allocation and focus on sectors likely to benefit from the cyclical recovery, rather than chase news-driven rallies.
What’s your view on Sebi proposal to elongate derivatives expiry?
Retail participation in derivatives has risen sharply in recent years, often with poor outcomes for small investors, as many studies highlight. Sebi’s intent with proposals like elongating contract expiries is to temper excessive short-term trading and discourage speculative churn. Longer-dated contracts are less attractive to retail traders seeking a quick turnaround, while still serving the needs of institutional players for hedging and writing yield enhancement strategies.
That said, elongation alone may not fully curb speculation—traders can still take leveraged bets, just with more extended holding periods. The more meaningful impact will likely be a moderation in retail volumes, greater alignment of derivatives activity with genuine hedging, and a possible increase in retail flows toward cash equities. Liquidity in the near-term contract might reduce initially, but over time, market depth should rebalance around the new structure.
Gold has been a significant outlier vis-à-vis equity. What ratio would you recommend for gold, equities and any other asset class in the portfolio?
Gold has indeed delivered attractive long-term returns, averaging 11–12% with lower volatility than equities, and has proven to be a reliable diversifier since it is largely uncorrelated with equity or fixed income. Investors should consult investment managers to determine their allocations based on their risk profile and asset allocation. Gold is primarily used as a hedge and stabiliser, with equities being the core growth driver in portfolios, and the rest allocated to fixed income for stability and regular income. In short, gold remains essential for diversification and risk management, but equities will continue to anchor long-term wealth creation, and fixed income provides balance and steady income flows.
India has lagged behind EMs. What’s driving investors away from India to other markets?
India had a remarkable run post-COVID, outperforming most EMs, but in the last few quarters, relative performance has lagged. The reasons are twofold: first, cyclical weakness in corporate earnings, and second, valuations having run ahead of other EM peers, making India look expensive. This has led global investors to tactically rotate into markets that are both cheaper and more sensitive to the commodity and rate cycle.
That said, we see this trend as temporary. With earnings likely bottoming out over the next couple of quarters and India’s macro fundamentals — from domestic consumption to fiscal stability — still stronger than many peers, flows should normalise. In our view, relative underperformance could persist in the very near term, but over a 6–12-month horizon, India should regain its strength within the EM basket.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
