Oil prices remain a key macro risk for India
Crude oil continues to be one of the biggest external risks for the Indian economy. India consumes far more crude than it produces and depends on imports for about 85% of its oil needs.The report estimates that every $10 increase in crude prices could raise India’s import bill by about $12–15 billion annually. If oil prices were to sustain above $120 per barrel through FY27, India’s oil trade deficit could widen significantly and push the current account deficit above 3% of GDP, which historically has been associated with currency pressure and inflation risks.
While services exports and remittances have helped cushion the impact in recent years, the report notes that weaker foreign capital inflows could add to macro headwinds if oil prices rise sharply.
Global markets driven by AI spending surge
Globally, the report highlights the massive investment cycle around artificial intelligence. Spending by large technology companies such as Apple, Microsoft, Amazon, Alphabet and Meta has accelerated rapidly in recent years.
According to the report, big tech capital expenditure has grown at a 32% compound annual rate since 2019, far outpacing other investment categories. The scale of spending on AI infrastructure now exceeds several historic investment cycles and has become one of the largest capital deployment phases in US history.
This surge has also led to high concentration in global equity markets, with a small group of technology firms accounting for a large share of index performance.
Expensive global equities raise valuation concerns
Despite strong earnings growth among large technology companies, valuations in US equities remain elevated.
The report notes that the S&P 500’s valuation metrics are close to multi-decade highs, while a handful of technology companies now represent a significant portion of overall market capitalisation.
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This concentration means that even small disappointments in earnings or developments affecting the AI investment cycle could have a disproportionate impact on broader equity markets.
Capital flows within emerging markets shifting
Within emerging markets, leadership has also started to rotate.
India had seen a strong phase of outperformance in recent years, increasing its weight in emerging market indices. However, the report indicates that momentum has recently shifted toward markets such as China and South Korea, particularly in technology sectors.Foreign institutional investor (FII) flows often track market returns rather than drive them. As relative returns change across markets, global investors tend to rebalance allocations accordingly.
Large caps may offer relative stability
Within India’s equity market, the report points to an unusual development: the share of the largest companies in overall market capitalisation is close to historic lows.
This could make large-cap stocks relatively attractive from a portfolio stability perspective, especially after a prolonged period in which mid- and small-cap stocks delivered strong outperformance.
The report suggests that large caps could act as a defensive allocation if market volatility increases.
Small and midcaps still above historical averages
At the same time, valuations in the small- and mid-cap segment remain elevated despite recent corrections.
The median valuation multiple for the segment stands significantly above its long-term average, although it has started to decline from earlier peaks. Historically, deeper market corrections have pushed these multiples to much lower levels before offering strong long-term entry opportunities.
Indian IT sector shows signs of neglect
One sector the report highlights as potentially overlooked is information technology.
Indian IT stocks have significantly underperformed global technology benchmarks in recent years and now account for a relatively small weight in benchmark indices. At the same time, several large IT companies continue to generate strong returns on equity and healthy cash flows while trading near or below historical valuation averages.
While near-term growth visibility remains limited, the report suggests the sector may appear more attractive if valuations decline further, especially for investors using a systematic investment approach.
Focus on diversification and disciplined investing
Overall, the report suggests that many asset classes currently show elevated long-term returns, indicating a more mature phase of the market cycle.
In such environments, investors may benefit from disciplined asset allocation, diversification across equities, debt and gold, and avoiding concentrated bets based on recent market narratives.
It also cautions investors against chasing recent winners and emphasises the importance of valuation discipline and portfolio resilience during uncertain market cycles.
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