Indian financial markets are navigating a landscape marked by global uncertainties, elevated valuations, and shifting macroeconomic trends. In an exclusive interview, Ajay Garg, Director & CEO of SMC Global Securities, offered his perspective on various factors influencing investor sentiment, from recent corporate earnings to geopolitical impacts and the booming IPO market.
Market Valuations and Q4 Earnings
Contrary to the perception of Indian markets hovering at record highs, Garg noted a nearly 10 percent correction from recent peaks. He described the Q4 earnings season as mixed, with strengths observed in banking, capital goods, and manufacturing sectors. Conversely, IT and export-oriented sectors continued to face challenges. While an earnings growth of 10-12 percent is anticipated for several sectors, Garg expressed apprehension that projections for FY27 could be overly optimistic, particularly if global demand falters. He also warned of potential earnings downgrades in upcoming quarters due to geopolitical tensions, rising input costs, and a global economic slowdown. Critically, Garg highlighted that while large-cap stocks might maintain reasonable valuations, certain segments of the broader market appear to be outpacing actual earnings delivery.
Gold's Role Amid Uncertainty
Gold prices have remained elevated, driven by geopolitical instability, central bank purchases, inflation concerns, and a weakening rupee. Garg acknowledged gold's enduring appeal as a safe haven asset, especially with fluctuating crude oil prices and ongoing global conflicts. However, he cautioned against aggressive pursuit of gold at current high levels, suggesting that short-term profit-taking is possible if geopolitical tensions ease or the US dollar stabilizes. He advises investors to allocate a sensible portion to gold as a protective measure rather than a speculative investment.
Rupee Weakness and Import Dependence
The depreciation of the rupee against the dollar poses a significant concern for India's import-dependent sectors, including aviation, chemicals, oil marketing, electronics, and auto components. A weaker rupee directly translates to increased input and fuel expenses, exacerbating imported inflation and squeezing corporate profit margins. India's reliance on crude oil imports, accounting for approximately 85 percent of its needs, makes the economy particularly vulnerable to simultaneous increases in oil prices and the dollar's strength. Conversely, export-driven sectors like IT services and pharmaceuticals may benefit from currency depreciation. The primary risk, Garg noted, lies in a chaotic rupee decline coinciding with foreign institutional investor (FII) outflows and high crude oil prices.
Global Macros and India's Growth Story
Global macroeconomic factors continue to present the most significant short-term threats to Indian stock markets. Rising crude oil prices, persistent geopolitical uncertainties, increasing U.S. bond yields, and ongoing FII outflows contribute to market volatility. In 2026, FIIs have notably withdrawn funds from the Indian market, reflecting a cautious stance toward emerging economies. Despite this, robust domestic investments, particularly through Systematic Investment Plans (SIPs) and mutual funds, have emerged as a crucial stabilizing force. However, Garg warned that substantial corrections could occur if foreign selling intensifies significantly, especially amidst rising crude prices and a depreciating rupee, potentially overwhelming domestic inflows.
India's Red-Hot IPO Market
India's primary market experienced a record-breaking year in FY26, raising Rs 1.8 lakh crore through 219 listings. However, average listing gains have moderated sharply to around 8 percent, down from nearly 28 percent in the previous year, indicating increased investor selectivity. Garg believes genuine value still exists in companies with strong business models, clear profitability prospects, and fair pricing. Yet, he also observed a rise in speculative involvement in lower-quality assets. He advised investors to prioritize fundamentals, valuations, and sector outlook over grey market premiums or short-term listing profits when considering IPO investments.