‘We expect a 10–11% growth in the Nifty over the next year. If you choose the right mutual funds, fund managers could potentially generate 3–4% alpha above that, so a 13–14% return is quite realistic,’ says Chirag Muni, Executive Director, Anand Rathi Wealth Ltd.
Excerpts:
Q: How are global macro trends like US tariffs and inflation impacting mutual fund performance?
Chirag Muni: A lot is happening globally, creating short-term uncertainty in equity and bond markets. US tariffs, especially on China, may cause inflation domestically, but their long-term impact will vary by country. India remains relatively cushioned, and recent equity performance reflects that. For now, the direct impact on Indian mutual funds appears limited.
Q: What impact are these tariffs having on the US economy right now?
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Chirag Muni: Markets reacted sharply amid fears of a potential recession and an inflation spike. But putting it in perspective, the US GDP is $29 trillion, and imports make up only 11% (~$3.3 trillion). Since 90% of US consumption is domestic, the inflationary impact is likely limited. Inflation has already dropped from 8% in 2022 to ~2% now. Even if tariffs push inflation slightly, we estimate it won’t exceed 3%.
On the revenue side, average tariffs have jumped from 2.5% to 25%. Tariff collections could rise from $90 billion to $500 billion, which may help reduce the fiscal and trade deficits. As for growth, the US might see some moderation—from the current 2.8% to around 1.6–2%. So yes, there’s short-term uncertainty, but the long-term impact seems manageable—possibly even positive if trade deals are struck.
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Q: You mentioned US equities could rebound in the medium term. But will this current market volatility continue for a while?
Chirag Muni: Yes, some volatility is likely to persist—especially in US markets—as the news flow continues daily. Over the next 2–3 months, we may see fluctuations, but not to the extreme levels we’ve just witnessed. Eventually, corporate earnings and macro data will start dictating market direction, and that should bring some stability.
Q: What about India—how are these tariffs impacting us, particularly in terms of inflation and overall growth?
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Chirag Muni: India’s $3.9 trillion economy exports about $80 billion to the US—just 2% of our GDP. Even if 10% of that is impacted, it shaves off only 0.2% from GDP. That’s why the RBI’s GDP projection has only been revised slightly—from 6.7% to 6.5%. In terms of inflation, the impact is minimal. Most of India’s inflation comes from food and fuel—largely domestic components. The RBI remains comfortable with a 4–4.1% inflation estimate.
From April 1 to April 11, India’s equity markets saw only a 1.5% dip—one of the smallest globally. Compared to peers, India remains relatively insulated.
Q: In fact, you said this could even be a positive for India. Why so?
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Chirag Muni: Absolutely. India stands out on all major macro indicators—GDP growth of 6.5%, inflation at 4–5%, strong tax collections, and healthy nominal GDP growth of 10–11%. Historically, nominal GDP and Nifty returns have had a strong correlation, and we expect similar 10–11% equity returns over the next few years.
On the global front, countries like Vietnam, which benefited from the China+1 strategy earlier, now face 46% tariffs—India’s lower tariff exposure gives us a competitive edge. Plus, India has already been engaged in bilateral trade talks with the US, which boosts our chances of a favorable deal. In a world looking to diversify supply chains, India is uniquely positioned to benefit—especially with the government-backed manufacturing push.
Q: Trump’s unpredictability has caused extreme market moves in short time spans. Is the tariff shock behind us, or should we brace for more?
Chirag Muni: I believe the initial tariff shock is behind us. Trump had to make a point from a US standpoint—highlighting how the US, as a major consumer economy, was subject to higher tariffs while offering low tariffs in return. Now that he’s made that statement, I expect the situation to improve. Trump is likely to negotiate individually with countries, potentially reducing tariffs going forward.
However, the environment will remain volatile in the short term, especially with the US and China still not on talking terms. For instance, we just heard that China has halted deliveries of Boeing planes to the US—so tension remains. Still, Trump is a businessman, and no one wants a prolonged trade war that damages their own economy. Eventually, a middle ground will emerge.
Q: Let’s talk about Q4 earnings. What should we expect, and do we have any data points to guide our expectations?
Chirag Muni: Markets had corrected about 14–15% from their September peak, largely due to earnings concerns. But if we look back at Q3 earnings, they were actually quite strong:
Nifty EPS grew by 11.1%
Nifty Midcap 150 surged 32%
Smallcaps grew 6.5%
These positives got lost amid global noise, but they’re important. We expect the momentum from Q3 to largely carry forward into Q4, even if the first half of the year stays a bit soft.
Also, keep in mind Q1 last year was election-heavy and slow, so we’re working off a lower base. Add to that the government’s capex push, corporate tax cuts, and RBI rate cuts—these should all support earnings growth going forward.
Q: And what about valuations—are we in an expensive zone or still reasonably priced?
Chirag Muni: Valuations remain reasonable. For FY24, Nifty EPS is estimated at around 1,154, and for FY25, around 1,300. The long-term forward PE for the Nifty is around 19.6x. Even at that average multiple, the fair market level should be around 25,500—about 10% higher than current levels.
Given that bond yields are low (around 6.77%), markets typically justify a higher PE multiple—up to 23x. Yet, even at a conservative base case, we’re trading at a discount.
To give you context: In FY20 (pre-COVID), Nifty earnings were Rs 447. Today, they’re over Rs 1,150—that’s almost a 3x growth. But the market hasn’t tripled in that time. So, we believe there’s still room to catch up.
For investors: if you’re heavily overweight in equities, consider trimming. But maintaining a 60–65%, even 70%, allocation to equity is still fine at current levels.
Q: What CAGR should we expect from the Nifty 50 this year?
Chirag Muni: We expect a 10–11% growth in the Nifty over the next year. If you choose the right mutual funds, fund managers could potentially generate 3–4% alpha above that—so a 13–14% return is quite realistic.
Let me share some data points:
Over the past 25 years, if you had invested at the lowest point of the Nifty each financial year, the average one-year return was 44%.
The lowest return in such cases was 11%, and the highest was 96%.
On June 4 last year, Nifty hit a low of 21,885, and more recently it was around 22,000. So, we are near historically strong entry zones.
Another signal:
Historically, when FIIs (foreign institutional investors) have been net sellers for extended periods, the average reversal year gives a 25% return.
This time, FIIs sold for nearly 16 straight weeks and turned positive by the last week of March.
The long-short ratio has improved—currently about 25% long and 75% short, which is a positive indicator.
All this suggests the next 12 months could be rewarding—provided one takes a balanced exposure (ideally 65–70% equity).
Q: What should investors focus on right now in terms of asset allocation? How should they diversify across equity and debt?
Chirag Muni: From an asset allocation standpoint:
70% Equity / 30% Debt is a good mix for long-term investors, likely yielding an average return of 11%.
Debt options: G-Secs are yielding ~7%, but if you can find good-quality alternatives, returns can be better.
Within Equity:
50–55% in large caps for stability
The rest divided between mid and small caps
Key disciplines to follow:
Do NOT stop your SIPs. Volatility often causes panic, but historical data shows that if SIPs show negative returns in the first year and you stay invested for 4–5 years, the average returns have been 14–15%.
Consider topping up your SIPs during such dips if you have liquidity.
Lump sum investments are okay too right now—you don’t always need to stagger your investments.
(Disclaimer: Please note that these are not recommendations. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.)
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