He pointed to simple valuation metrics such as market capitalisation-to-GDP ratios as indicators of potential downside, while acknowledging the inherent uncertainty in timing such a correction.
“Our view is that a correction in global equity markets is possible, and if that happens, India should outperform. However, there is a risk of a global market correction over the next two years, even though the timing is uncertain and difficult to predict.”
According to Naren, the sharp market reaction after the Budget is largely driven by concerns around higher securities transaction tax (STT) in derivatives.
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He pointed out that despite the noise, most elements of the Budget are supportive for long-term investors. Fiscal discipline remains intact, the macro environment is stable, and government priorities are clearly visible.
Naren highlighted that derivatives trading has historically not helped retail investors. In his view, higher taxes in this segment could actually protect retail participation, while impacting high-frequency and speculative trading. Importantly, STT on cash equities has not been changed, which keeps long-term investing unaffected.
On growth themes, he welcomed the government’s push to attract investments into data centres and artificial intelligence. He said the tax incentives announced for data centres can help India build an AI services ecosystem and improve the country’s global tech positioning.
“One of the biggest challenges for India is it was not seen as a country which is connected to AI.”
Addressing concerns around higher bond yields and the government’s borrowing programme, Naren said the focus should be on net borrowing rather than gross borrowing. He expects strong collections under small savings schemes to reduce pressure on market borrowings.
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He added that the Centre’s fiscal position is among the best seen in recent years, even though some concerns remain around state government finances.
On foreign investor behaviour, Naren said India remains one of the strongest structural growth stories globally, even though valuations are not cheap. While FIIs may look at other markets tactically, being heavily underweight India could force them to return at a later stage.
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