Expert view: Persisting uncertainty over an India-US trade deal has been a key reason behind the Indian rupee’s weakness, foreign capital outflow, and the modest returns of the Indian stock market this year. According to Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, a delayed India–US trade deal is more of a sentiment overhang than an immediate macro shock for India. She believes the domestic equity market can digest trade-related delays without significant structural damage if domestic demand, capital expenditure (capex) and credit growth remain intact. In an interview with Mint, Srivastava also shares her views on current market trends, the AI theme, expectations for Q3 earnings, and Budget 2026. Here are edited excerpts of the interview:
Why is the Indian stock market not able to hold gains?
The current market structure is characterised by high headline resilience but weak internal breadth.
Index levels are being supported by a narrow set of large stocks, while the broader market is seeing persistent profit booking.
One key reason gains are not holding is the divergence between real growth optimism and modest nominal growth, which directly caps earnings visibility.
Liquidity conditions are also tighter than what markets were conditioned to over the past few years, and global flows remain tactical rather than directional. At the same time, valuations, especially in parts of mid and small caps, had moved ahead of near-term earnings delivery, making the market vulnerable to any negative surprise.
In such a structure, rallies tend to be sold into rather than extended, resulting in a choppy, range-bound market rather than a sustained uptrend.
Is this the right time to buy, or should investors wait for stability?
This is not a market for aggressive, all-at-once buying, but it is also not a market that warrants staying completely on the sidelines.
Volatility is creating dispersion, which is healthy for long-term investors. The right approach is staggered allocation with a clear bias towards balance sheet strength, earnings visibility and reasonable valuations.
Waiting for perfect stability usually means missing the best entry points, while chasing short-term momentum can lead to drawdowns. Investors should focus on building positions gradually, keeping cash for further volatility, and avoiding leveraged or purely narrative-driven trades.
Markets tend to discount uncertainty before it shows up clearly in data, so selective buying during periods of discomfort often works better than waiting for clarity, which usually comes at higher prices.
How could a delayed India–US trade deal impact the Indian economy and stock market?
A delayed India–US trade deal is more of a sentiment overhang than an immediate macro shock.
While certain export-oriented sectors may see slower order momentum or deferred investment decisions, India’s growth engine today is far more domestically driven than in the past.
The bigger impact is on market confidence, especially for foreign investors who tend to price in policy certainty and long-term trade visibility.
Prolonged delays can keep valuations capped and flows cautious, but it does not automatically translate into a prolonged bear market. Markets are more sensitive to earnings delivery and financial conditions.
If domestic demand, capex and credit growth remain intact, the equity market can digest trade-related delays without significant structural damage.
What are the key themes for next year? Will AI continue to dominate?
Next year is likely to be about earnings normalisation rather than multiple expansion.
Themes such as domestic manufacturing, capex-linked plays, financialisation of savings and premium consumption should remain relevant.
AI will continue to dominate market chatter, but the narrative will evolve from promise to monetisation.
Investors will increasingly differentiate between companies that can translate AI adoption into productivity gains or revenue growth and those where AI remains largely a story.
Pure hype-driven valuations are unlikely to sustain. At the same time, market leadership may broaden beyond technology narratives towards businesses benefiting from supply chain diversification, infrastructure spending and formalisation of the economy. The focus will gradually shift from ideas to execution and cash flows.
What should be the investors’ strategy for the Indian IT sector?
The Indian IT sector is moving from a period of earnings downgrades towards gradual stabilisation, but a sharp cyclical rebound is unlikely in the near term.
Deal pipelines are improving selectively, though discretionary spending remains cautious.
Opportunities exist, but stock selection is critical. Companies with strong client mining capabilities, exposure to cost takeout deals, and a balanced mix of digital and traditional services are better positioned.
Investors should avoid extrapolating short-term deal wins into aggressive growth assumptions.
Valuations are far more reasonable than a year ago, which improves risk-reward for long-term investors.
The strategy should be to accumulate quality names on weakness rather than chase short-term rallies driven by global tech sentiment.
What are your expectations for the Q3 earnings season?
Q3 earnings are unlikely to deliver a broad-based surprise on the upside. Growth is expected to be steady but not spectacular, with margins under pressure in sectors facing input cost volatility or pricing competition.
Financials may continue to show relatively better stability due to healthy credit growth, while consumption-linked sectors could see mixed trends depending on rural and urban demand divergence.
The key will be management commentary rather than headline numbers. Markets will react more to guidance on demand visibility, margin trajectory and capital allocation than to one-quarter performance.
Any sharp earnings upgrades across the market are unlikely, reinforcing the case for selective stock-specific positioning rather than index-level optimism.
What are the key market expectations from Budget 2026?
From Budget 2026, markets are looking for continuity rather than big-bang surprises.
The primary expectations are sustained focus on capital expenditure, fiscal discipline, and measures that support manufacturing and job creation.
Any further rationalisation of taxes or incentives that boost consumption without materially straining the fiscal math would be viewed positively.
Investors will also watch for clarity on disinvestment, infrastructure financing, and incentives linked to productivity and formalisation.
A credible fiscal glide path remains critical for bond markets and foreign investor confidence.
Overall, a growth-supportive but fiscally prudent budget is more important for markets than headline-grabbing announcements.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, 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.
