Highlights
- US midterm verdict eases uncertainty, supports global market sentiment.
- Indian large-cap rally could face 10–15% upside ceiling.
- AI disruption, expensive valuations remain concerns for Indian companies.
The US midterm election verdict and easing crude oil concerns have provided relief to global financial markets, with Indian large-cap stocks witnessing a near-term rebound. However, the rally in large-cap equities could be capped at 10-15 per cent as concerns over valuations, global competitiveness and artificial intelligence disruption persist, according to Rahul Chadha, Founder and Chief Investment Officer of Shikhara Investment Management.
Speaking to ET Now, Chadha, who previously served as Chief Investment Officer at Mirae Asset Global Investments, said the US election outcome had helped ease uncertainty following the market pullback in October. He also discussed the implications of President Donald Trump’s changing approach towards Iran, potential regulatory changes affecting AI investments and the concerns foreign investors have about Indian companies.
US midterm elections and crude oil concerns
Chadha described the US midterm election verdict as a relief for financial markets following the uncertainty surrounding the election outcome.
“I think clearly the election verdict is a clearing event or a sigh of relief from a market’s perspective,” he said.
He said the expansion had contributed to elevated inflation and bond yields, which he cited at 5.30 per cent.
According to him, the possibility of greater checks and balances on data centre approvals could slow the pace of investment without bringing it to a complete halt. He added that bond yields had responded positively.
Chadha also linked the election verdict to public concerns over US intervention in Iran, rising oil prices and affordability pressures facing middle-class households.
He said the technology investment boom had benefited people associated with technology companies, while the broader population continued to face financial pressures.
Iran tensions: Will the risk premium remain?
Chadha said geopolitical uncertainty surrounding Iran could continue to influence financial markets until a resolution is reached.
“Some risk premium would remain till the time a resolution is found,” he said.
He noted that investors had been concerned about the possibility of an extreme response from President Trump following Republican losses in the midterm elections.
However, Chadha said the president would also have to consider the political implications of such action, including the possibility of Republican lawmakers moving towards the Democratic camp and increasing the risk of impeachment proceedings.
According to him, Trump’s tone towards Iran had become significantly softer over the previous two days, indicating a reluctance to escalate tensions.
Chadha said this change had been viewed positively by financial markets.
According to Chadha, the easing of these concerns had provided comfort to markets.
AI stocks: Is an unwind underway?
Chadha acknowledged that some unwinding of AI-related investments was taking place amid uncertainty over future US policies.
“I think some bit of an unwind is happening because of this policy uncertainty,” he said.
He explained that affordability and the expansion of data centres had emerged as important election issues in the United States.
According to Chadha, data centres had become associated with the growing influence of large technology companies and public concerns about the potential impact of AI on employment.
However, he distinguished between election rhetoric and actual policy implementation.
“I don’t think there is gonna be a complete pause on data centers,” he said.
Chadha expects greater regulatory oversight of data centre development, including additional checks and balances.
He also suggested that data centre operators could be required to contribute more to local communities as they expand their operations.
Trump’s approach towards West Asia
Chadha said the Democrats could increase scrutiny of transactions involving the Trump administration, individuals close to the president and companies associated with it.
He suggested that such scrutiny could create political difficulties for the administration.
According to Chadha, Trump would seek to avoid a situation in which Republican lawmakers shift towards Democrats and potentially support impeachment proceedings.
With the next presidential election two years away, Chadha said maintaining unity within the Republican Party would be an important consideration.
He linked these political factors, along with inflation and Iran-related concerns, to the change in the administration’s approach towards West Asia over the previous two days.
Foreign investors in India: Can large-cap stocks rally further?
However, he identified valuations and global competitiveness as concerns for foreign investors.
According to Chadha, these questions had been raised over the previous two years and continued to influence foreign investors’ assessment of Indian equities.
He said that after a rally of 10-15 per cent, some large-cap stocks could face resistance as their valuations became less attractive.
“Which is why for large caps, again, I think the rally or the gains get capped at 10 to 15%,” he said.
AI disruption: What lies ahead for Indian companies?
Chadha said AI disruption remained a structural concern for Indian businesses over the medium term.
He suggested that the impact of AI-led changes might have been pushed back by a couple of quarters, but Indian companies would eventually face the consequences.
According to him, the question was whether these companies were adequately prepared for the disruption.
Chadha also commented on mid-cap stocks, noting that the segment had already witnessed a strong run.
He said several mid-cap companies were in the early stages of their business cycles and were gaining market share across different segments.
Watch full interaction here;
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money-related decisions.)