Just grappling with how you manage to adjust to all the news flow that gets thrown at you regarding tariffs. The good thing, perhaps, if you look at it as a glass-half-full scenario, is that you at least know the worst-case possibility—maybe a 25% tariff. Although, looking at Canada this morning, where the tariff slabs have actually been increased, you never know which way this might go. How long do you think it will take for Indian markets to adjust to a 25% tariff reality, given that we were neither overvalued nor cheap?
Seshadri Sen: You’ve touched upon the major issues. As for where the tariffs will land, predicting that is very difficult at this point. But it’s a safe assumption that 25% is close to the worst-case outcome, and the final agreement will likely be around that or slightly better. That said, tariffs are only a small part of the overall India equity story. Yes, in the short term, a nasty surprise on the tariff front could lead to an immediate sell-off, possibly led by a reaction in the rupee. But in the medium term, tariffs don’t significantly impact the broader India story.
The most important driver for Indian markets over the next 12 months is the cyclical recovery—mainly in consumption—that’s gradually building in the second half of this financial year. The primary driver of this is the monetary stimulus provided by the RBI. We are fairly confident that, come the festival season, we’ll start seeing stronger consumption numbers, especially in discretionary segments. In fact, in the non-discretionary space, we’re already seeing reasonably good numbers coming through. So yes, there may be short-term volatility around tariff news, but the key focus should be on whether we see a domestic cyclical recovery in H2.
Oh yes, absolutely—and hats off to the central bank. They did everything they could with the bazooka they fired last time, and perhaps there’s still more in the offing. But that’s just one part—the global side of things. Domestically, what’s your take on the earnings? They seem very mixed—case by case. No sector is performing consistently well; it’s down to a few companies within each sector.
Seshadri Sen: Yes, earnings haven’t been particularly bad. We entered the season expecting a weak quarter. The macroeconomic indicators we tracked during the last quarter weren’t very strong, so a soft earnings season was expected—and the market was prepared for it. In that context, the results have not been too disappointing.
In absolute terms, yes, the numbers are weak, but relative to expectations, there haven’t been any major negative surprises. And the proof of that is forward estimates for both Nifty and the broader market haven’t taken a hit, unlike the period from October last year to April this year. So while earnings are weak, they aren’t alarming at this point. There is, however, a lot of hope pinned on a second-half recovery. And you’re right—within these relatively weak results, there are pockets of positive surprises, particularly among small- and mid-cap companies.
When you say earnings aren’t as bad as expected, could you help us understand which sectors you’re pinning your hopes on? The IT sector hasn’t seen much action, and even in banking, there have been disappointments. But auto and FMCG seem to be doing better. Based on the earnings, are you making any adjustments to your portfolio?
Seshadri Sen: The earnings season has reaffirmed our sectoral stance. Our top overweights remain in consumer discretionary and industrials, and the current results haven’t given us any reason to change that view. In fact, some industrial companies—especially in power equipment—have delivered fairly positive surprises. On the consumer discretionary side, while the overall numbers aren’t exciting, we’ve seen some strong positive surprises despite the muted growth environment. So yes, our overweights in those two sectors remain intact. We’ve been negative and underweight on financials for some time, and the results here have been mixed. As for FMCG, it’s a sector we’re avoiding due to a structural negative shift. Valuations aren’t attractive enough to justify taking risks there.
I’d like to probe a bit more into your FMCG call. We’re hearing of some green shoots in urban demand, while rural continues to outperform—though not across the full staples basket. Would you consider revisiting rural-focused themes or companies with strong rural exposure?
Seshadri Sen: As a top-down theme, rural demand does appear attractive, but there’s a lot more happening in that sector, so I’d still stay away. Generally, stock price performance in FMCG comes from margin improvement, not volume growth. Also, there’s a structural change underway—both in advertising and distribution—that’s narrowing competitive moats for many companies. So, trying to play a short-term rural bounce in that context feels risky. There could be a short-term trade in rural-heavy companies, yes—but until I see a clear path to improving margins and pricing power, I wouldn’t be comfortable entering the sector. And frankly, despite the positive commentary around rural recovery, I don’t yet see a convincing path to margin recovery.
So what sector, in your view, currently has a strong moat and is somewhat decoupled from global moves?
Seshadri Sen: I’m a bit wary of the word decoupled—nothing is truly decoupled. If there’s a major global shock, India won’t be immune. But with that caveat, there are three structurally strong sectors that I consider permanent themes in my model portfolio.
Internet – Adoption is improving, business models are maturing, and execution has been strong across several companies.
EMS (Electronic Manufacturing Services) – I’m a recent convert here. Growth is solid, and much of it is driven by import substitution, which is relatively immune to tariff disruptions. Domestic production still accounts for a small share of total electronics consumption, and this will rise further with favorable government policies.
Airlines – We’re adding two new airports in MMR and NCR in the next year. Globally, there’s a shortage of new aircraft, which benefits incumbents in India. This gives them continued growth, market share gains, and pricing power. Current valuations don’t fully reflect this upside.
So these are the three sectors where we intend to stay invested despite short-term cycles or volatility.
