Saurabh Mukherjea warns that Indian markets are entering a challenging phase, with global rate hikes and inflationary pressures capping broad market growth, even as select companies outperform.
Saurabh Mukherjea says Indian equities are entering a tougher phase in which broad market gains may be capped, even if select businesses continue to perform well. The founder and chief investment officer of Marcellus Investment Managers argued that a combination of stubbornly high global rates, firmer crude prices and weaker household finances could keep pressure on the Nifty and Sensex over the next few years, even as quality companies hold up better than the wider market.
Speaking to Anil Singhvi, Mukherjea said the global backdrop has been unusually difficult for about 18 months and may deteriorate further if central banks stay tight. He expects the US Federal Reserve to lift rates twice more before Christmas, while the Reserve Bank of India may also be forced to tighten further. That view sits against a broader market backdrop in which rising bond yields, Fed caution and lingering oil concerns have already unsettled investors, according to reporting by Fortune India and Mint.
Mukherjea’s first concern is inflation, especially if tensions in the Gulf continue to disrupt energy markets. He said oil and gas prices could climb through the winter if the situation remains unresolved, while food-grain and edible-oil inflation may stay elevated because of El Niño and climate-related pressures. Economists quoted by the Economic Times have offered a different view, saying the RBI may still hold rates steady despite fuel-price and weather risks, but Mukherjea warned that the balance of risks still points to a period of high inflation and higher borrowing costs.
His second concern is the strain on households. Mukherjea said debt has risen sharply since the pandemic and that a higher-rate environment would quickly translate into heavier equated monthly instalments for borrowers. He also argued that white-collar employment has weakened to an extent he has not seen since 1991, with the growing influence of artificial intelligence likely to keep job creation under pressure. On consumption, he said the shift by governments towards direct transfers, rather than stronger public services, leaves middle-class families paying more out of pocket for education and healthcare and with less left for everyday spending.
That, in turn, creates opportunities in businesses tied to essential services, including hospitals, diagnostics and health insurance, he said. But for the broader market, Mukherjea expects gains to remain limited. He said India has repeatedly gone through cycles in which several strong years are followed by a long stretch in which the index goes nowhere, even while select companies continue to compound wealth. In his view, the market is now in one of those slower phases, which means investors need to be more selective than they have been during the recent bull run.
Mukherjea also expects a heavy pipeline of initial public offerings, qualified institutional placements and offers for sale to continue, helped by rich valuations in small and mid-cap stocks. He warned that when companies can raise money at 30 to 50 times earnings, the incentive to list remains strong, even if profit growth does not keep pace with market capitalisation. He further pointed to possible changes in long-term capital gains tax treatment for foreign investors as a potential support for flows, saying that any signal of relief could improve sentiment. Still, he suggested the market’s larger challenge is not a lack of stories, but a combination of expensive valuations, high rates and slowing domestic demand.
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