As markets remain on edge in the backdrop of developments in West Asia, Rishi Kohli, chief investment officer, Jio BlackRock AMC, tells Puneet Wadhwa in an interview meeting in New Delhi that given the current uncertainty, a further downside of around 5–10 per cent is possible if the conflict drags on, but does not expect anything significantly beyond that. Edited excerpts:
Is this the right time to invest in the stock markets?
Valuations are now reaching levels where they are starting to look interesting. However, whether investors should fully jump in is another question because the (geopolitical) situation is still evolving.
When the war began, a majority of people thought it would end in a few days. That has not turned out to be the case. Our view was that it could stretch because Iran has been preparing for such a situation for a long time. For them it was not a question of if, but when.
Because of that preparation, the reactions we are seeing are not entirely surprising. The conflict could extend for a few more weeks, as some expect, or it could last longer—we simply do not know. Investors should remain cautious and adopt a wait-and-watch approach.
That said, from current levels or slightly lower levels, investors should consider deploying some capital, depending on the liquidity they have.
Could the current uncertainty create a COVID-like opportunity for investors?
It is probably closer to the Russia-Ukraine phase rather than the COVID situation. The market behavior over the last 18 months of sideways movement and volatility resembles that earlier period. Even the crude spikes and sector-wise dispersion look similar. The COVID fall was extremely sharp and broad-based across sectors. That kind of deep correction is not my base case right now.
If the geopolitical situation escalates significantly—for example if other major countries get involved—then the final correction could become deeper. Otherwise, the current setup is more comparable to the Russia-Ukraine environment.
Also, unlike the COVID period where almost all sectors fell together, this time there is much greater dispersion between sectors. That means stock selection will matter more, rather than simply calling the market bottom.
Do you think the war has prolonged enough to significantly test market sentiment?
Yes, I think so. That is why you have seen the market reaction in the last few days. Crude oil spiking sharply—first above very high levels and even now remaining around $100—is not something anyone wants to see. From that perspective, it is a tail event. Markets price uncertainty. When uncertainty rises, markets become jittery.
Two developments surprised many participants: Iran firing at neighboring friendly countries, which few had expected. The speed of the crude oil spike, which was faster than anticipated.
In addition, disruptions related to shipping routes mean that even if things stabilize soon, it can take two months or more for supply backlogs to clear. So even if the conflict stops in a few weeks, the total disruption could last two and a half to three months. This will definitely have some economic impact.
That said, India’s macro environment has been quite strong overall, even though markets have not delivered returns over the last 18 months. The outlook was becoming more interesting, but the current situation may delay that positive cycle by about a quarter.
To what extent are the markets factoring in weaker corporate earnings for the next two quarters of FY27?
There will be some impact and certain sectors will clearly be affected. Earlier, we were expecting around 12 per cent earnings growth for the next financial year, but now that may come down slightly to around 9–10 per cent.
Our earlier expectation was that after March, markets could enter a very bullish phase for the next 18 months, with April seasonally becoming stronger. I still broadly remain in that slightly bullish camp, but the timeline may now be delayed by about three to four months.
Given this backdrop, is it time to turn bearish on the markets?
No, I do not think this is the time to be bearish on the markets. Even if the situation prolongs, the Nifty could fall another 5–10 per cent. If the conflict does not worsen significantly, the market could bottom around 1–2 per cent from current levels.
We have already seen about a 10 per cent decline from the peak, and perhaps the last 3–4 per cent of that decline was due to this uncertainty.
So while further downside of around 5–10 per cent is possible if the conflict drags on, I do not expect anything significantly beyond that. Overall, the stance should be neutral to slightly bullish, depending on an investor’s comfort, liquidity and valuations and technical indicators.
Which sectors or market segments appear safer?
For beginners, the best starting point is broad market exposure through funds. Core allocations should typically include large-cap funds, and flexi-cap funds. In terms of market capitalisation preference, earlier my view was large-caps over midcaps, and mid-caps over small-caps.
Given the current uncertainty, I would still prefer large-caps. Some small-caps are starting to look attractive after recent declines. Mid-and small-caps can be considered selectively, but it is better to access them through flexi-cap or multi-cap funds initially. Direct exposure can increase once uncertainties reduce.
To what extent have markets factored in macro risks such as inflation, gas prices and deficits?
The initial impact appears to be priced in. Markets may already be factoring in crude prices being $10–$20 higher on average for some time. However, if the disruption continues for longer, the damage could be greater.
The potential macro impact could range between 30 basis points and 100 basis points on indicators such as inflation, fiscal deficit and the current account deficit. The exact outcome depends on how long the conflict continues.
Have you lowered your year-end targets for the Sensex and Nifty?
On the macro model side, targets may be slightly lower, mainly because of the delay in the recovery cycle. At this stage, it is still too early to significantly revise projections. Markets sometimes recover faster than expected, so it would be better to wait a few more weeks before drawing conclusions.
Are you seeing redemption pressure from investors? What is the broader industry experience?
There are always some knee-jerk reactions when markets fall. Some retail investors exit and some SIPs slow down or stop temporarily, which is visible in recent data. However, because we are launching new funds and are a relatively new mutual fund, we are still seeing net inflows overall.
Across the industry, categories such as large-cap and flexi-cap funds have generally continued to see net inflows. That said, there has been some moderation in SIP flows in recent months, similar to what happened in January–February last year.
Retail sentiment naturally reacts to market movements, but overall investor awareness and education are much better compared with ten years ago.
Equities have not delivered much in the last 12–18 months, doesn’t that weaken the case for investing in this asset class?
Not really. That is a normal part of market cycles. Over the long term—whether 10, 20 or 30 years—equities have generally delivered strong returns in India. Gold has also delivered good returns in some periods, but equities offer much greater diversification across sectors, styles and strategies. Investors can adjust allocations, rotate sectors, and adopt tactical strategies—something that is not possible with a single asset like gold. There have also been periods where gold delivered little or no returns for many years.
So equities will always have an important role in portfolios. Given that the last 18 months have been weak in terms of valuations, earnings and technical trends, the outlook for the next 18 months is actually becoming more attractive.
