Delayed India-US Trade Deal and Weak Rupee Biggest Risks for Indian Markets: Prudent Investment CEO
As global markets ride a powerful wave led by technology and artificial intelligence stocks, concerns are growing about stretched valuations and the possibility of a correction ahead. According to Prashasta Seth, CEO of Prudent Investment Managers LLP, global equities could face a meaningful correction in 2026, even as India remains relatively better placed due to strong domestic fundamentals.
In an interaction, Seth shared his views on global market risks, India’s relative strength, key themes that could generate alpha in the coming years, and changing investment behaviour among high-net-worth individuals. Here is a simplified and structured look at his insights.
Global Markets: Correction Risk Rising After Tech Rally
AI and Tech Stocks May Be Overheating
Global equity markets, especially in the US, have seen a sharp rally driven by artificial intelligence and new-age technology stocks. Seth believes this rapid rise has pushed valuations far ahead of actual earnings visibility.
Many companies associated with AI themes have posted double-digit stock gains in a short period, even though AI contributes only a small portion of their current revenues. Historically, such disconnects between price and fundamentals often lead to corrections.
According to Seth, markets typically correct by 10 to 20 percent when excessive optimism fades and investors reassess long-term commercial viability.
Global Macro Risks Remain High
Beyond valuations, the global macroeconomic environment remains fragile. High debt levels across major economies, ongoing geopolitical tensions, and inflation still hovering above comfort levels for central banks add to uncertainty.
Any deterioration in these factors could quickly shift sentiment from risk-on to risk-off. Given the strong outperformance of global tech-heavy indices, a mid-double-digit correction would be a normal recalibration rather than a crisis.
Can Indian Markets Outperform During a Global Correction?
India Unlikely to Be Immune, But Relatively Strong
Seth does not expect India to move entirely in the opposite direction if global markets correct. However, he believes India is well-positioned to outperform on a relative basis.
India’s economy is driven largely by domestic consumption and services, which provide resilience during global downturns. Around 60 percent of GDP comes from consumption, while services account for nearly half of economic output.
Limited Exposure to AI Helps India
Unlike global markets, especially the US, India has limited exposure to AI-driven stocks. AI-linked sectors make up less than 5 percent of India’s total market capitalisation.
In contrast, AI-related companies can account for 25 to 30 percent of indices like the Nasdaq. This makes global tech indices more vulnerable during corrections.
Historically, during global drawdowns of 10 to 15 percent, Indian markets have corrected by a milder 5 to 10 percent, supported by domestic inflows, manufacturing momentum, and infrastructure spending.
India’s Recent Underperformance Could Turn into an Advantage
Valuation Premium Has Normalised
Indian markets have underperformed global markets over the past year. While this may have disappointed investors in the short term, Seth sees it as a healthy development.
India’s valuation premium over other emerging markets has come down to more reasonable levels after touching record highs in 2024. This normalisation improves future return potential.
Earnings Growth Outlook Remains Strong
Seth believes India could still deliver around 15 percent earnings growth in FY27. Several factors support this outlook, including expected rate cuts, a favourable monsoon, GST rationalisation, and labour reforms.
This earnings growth, rather than valuation expansion, is likely to drive market returns over the next 12 months.
Biggest Risks for Indian Markets
Delayed India-US Trade Deal
The most significant risk, according to Seth, is the continued delay in finalising the India-US trade deal. Uncertainty around trade terms affects export visibility and investor confidence.
Unlike China, which has diversified its export base over the years, India’s merchandise exports have struggled. This has contributed to a widening current account deficit.
Falling Rupee and Foreign Outflows
The slowdown in exports and trade uncertainty have also weighed on the Indian rupee. A weakening rupee increases import costs and discourages foreign investors.
The currency decline has accelerated foreign institutional investor outflows, adding pressure to equity markets. Until trade clarity improves, this risk is likely to persist.
Global Themes That Could Generate Alpha
Deglobalisation and Local Manufacturing
Seth believes the world is moving towards deglobalisation, with countries prioritising local manufacturing, supply-chain independence, and domestic capabilities.
This shift creates opportunities in automation, specialised components, and advanced manufacturing technologies as nations seek to reduce reliance on external suppliers.
Strategic Technology and Defence
Geopolitical tensions are pushing governments to invest more in strategic technologies. Areas such as defence manufacturing, robotics, drones, and high-value electronics are expected to see increased funding and policy support.
These sectors could emerge as strong alpha generators over the next one to two years as research, development, and capital investment accelerate.
Where Is Smart Money Heading Now?
Cautious but Opportunistic Approach
Smart money is currently cautious but quietly preparing for the next market cycle. Investors are prioritising companies with strong balance sheets, consistent cash flows, and solid fundamentals.
At the same time, the sharp correction in small- and mid-cap stocks has created attractive opportunities. Several fundamentally sound companies are now available at reasonable valuations after a long period of excess.
Microcaps Back on the Radar
For the first time in years, many microcap stocks are trading at appealing levels. While short-term volatility may continue, Seth believes medium-term returns could emerge from this space.
Instead of chasing momentum, experienced investors are gradually building positions, focusing on long-term compounding rather than quick gains.
Rising Interest in PMS and AIFs from Smaller Cities
Wealth Creation Beyond Metros
Demand for portfolio management services and alternative investment funds is rising sharply in tier-2 and tier-3 cities. Wealth creation is no longer limited to metropolitan areas.
Economic activity has expanded steadily in smaller cities, creating a growing base of investors with higher disposable income and evolving financial aspirations.
Digital Access and Community Trust
Improved financial awareness, driven by digital platforms, has made sophisticated investment products more accessible. In smaller cities, trust-based referral networks also play a crucial role in decision-making.
As a result, a significant portion of new PMS and AIF business is now coming from non-metro regions.
Why Boutique AMCs Are Gaining Popularity
Demand for Differentiation and Customisation
The rise of boutique asset management companies reflects changes in investor preferences. Large AMCs, shaped by regulatory standardisation and scale, often offer similar products.
Boutique firms fill the gap by offering high-conviction strategies, customised portfolios, and direct access to decision-makers.
HNIs Prefer Personalised Engagement
High-net-worth individuals increasingly favour boutique managers because they value flexibility, sharper investment themes, and closer engagement with fund managers.
In contrast, bank-led AMCs often operate with rigid mandates influenced by volume and distribution priorities, limiting their ability to customise portfolios.
Final Takeaway
According to Prudent Investment CEO Prashasta Seth, global markets may face a correction in 2026 after an intense rally in tech and AI stocks. India, while not immune, is likely to outperform due to strong domestic fundamentals, lower AI exposure, and steady earnings growth.
However, delays in the India-US trade deal and a weakening rupee remain the biggest risks for Indian equities. Investors who stay disciplined, focus on fundamentals, and take a long-term view may be better positioned to navigate the volatility ahead.
