Riddhiman Jain, Managing Director and Head of Investment Strategy and Solutions at Waterfield Advisors, postulates that artificial intelligence (AI) constitutes a secular, long-term paradigm shift, owing to the extensive transformation it heralds across various sectors.
Nonetheless, Jain underscores the necessity for investors to adopt a diversified approach, given the pronounced volatility in returns and valuations that characterise the AI landscape. In an interview with Mint, he elaborated on the prevailing market dynamics and investment strategies pertinent to gold, silver, and equities. Edited excerpts follow:
The domestic market’s struggle to maintain momentum: What catalysts could ignite bullish sentiment?
The recent challenges faced by the domestic market in retaining gains predominantly arise from a dearth of fundamental support; however, the third quarter of FY26 may prove to be pivotal.
Corporate India is currently experiencing a resurgence in earnings across the board, potentially serving as the long-anticipated impetus for bullish market sentiment.
This fundamental resurgence coincides with a transformational shift in liquidity dynamics. February has marked a reinvigoration of positive Foreign Institutional Investor (FII) flows, a vital element that had been notably absent in preceding months.
The intersection of this renewed foreign interest with the structural uptick in earnings can forge a powerful “double engine” for the bulls, furnishing the requisite depth and stability for a sustained market ascent.
Why have the US-India trade agreement, the India-EU trade deal, and the Union Budget 2026 fallen short of catalysing a market rally?
Despite the optimism encircling the US-India and India-EU trade agreements, alongside the Union Budget 2026, markets have failed to rally due to immediate fiscal and structural impediments posed by the Union Budget 2026-27.
The budget’s proposal to escalate the Securities Transaction Tax (STT) for the third time since 2023 emerged as a significant sentiment dampener, adversely affecting liquidity and high-frequency trading.
Moreover, the government’s gross borrowing target of INR 17.2 lakh crore surpassed market anticipations, exerting upward pressure on bond yields and constricting liquidity.
Additionally, the budget’s emphasis on fiscal consolidation rather than aggressive stimulus deprived the market of a short-term growth catalyst.
While the US trade agreement led to lowered tariffs, it came at the strategic expense of ceasing discounted imports of Russian crude, adversely impacting major players like Reliance and oil marketing companies due to escalated input costs.
Furthermore, the advantages of the trade agreements are concentrated within particular sectors, such as textiles, chemicals, and auto ancillaries, which hold comparatively low representation in the benchmark indices.
The India-EU Free Trade Agreement (FTA) is perceived as a long-term structural adjustment rather than an immediate earnings catalyst, with benefits expected to unfold over several years rather than quarters.
What insights do you have on Q3 earnings? Is the nadir of corporate earnings now in the past?
The data from Q3FY26 suggests that the nadir of corporate earnings appears to be decidedly behind us, heralding a structural turnaround for the markets.
The sequential momentum for firms with a market capitalisation exceeding 5,000 crores illustrates an unmistakable upward trend: median sales growth has accelerated from approximately 9-9.5% in Q1FY26 to figures nearing 11-12% in Q3FY26.
Encouragingly, operational efficiency and profitability are outstripping revenue growth; median Operating Profit growth surged to nearly 15-16% this quarter, a notable increase from roughly 10-11% in Q1, while median Profit After Tax (PAT) growth skyrocketed to an impressive nearly 17-18% compared to 12-13% just two quarters prior.
The recovery is not confined to the largest corporations; mid-cap and small-cap segments are eclipsing large caps in terms of profitability, recording median PAT growth of nearly 18-20% each.
This widespread participation signals a robust and sustainable earnings cycle. The Q3 earnings resurgence establishes a strong fundamental foundation for the market.
When combined with corrected valuations and the revival of positive FII flows in February, this structural advancement crafts a compelling setup for market progression.
Gold’s long-term outperformance over Nifty: Why should investors restrain exposure to gold?
Although gold’s recent triumph over the Nifty might entice investors to recalibrate their asset allocation, this phenomenon is predominantly attributed to currency depreciation and episodic global uncertainties rather than sustained economic growth.
A substantial portion of gold’s returns in rupees emanates from the degradation of the domestic currency against the dollar, rendering it an effective hedge but not a vehicle for compounding growth.
Conversely, equities embody ownership in enterprises that generate cash flows, reinvest profits, and directly capitalise on the burgeoning Indian economy.
Historically, gold undergoes prolonged periods of price stagnation amid economic upswings, while equities deftly capture wealth generation within a developing nation.
Thus, investors are advised to perceive gold as a strategic diversifier to mitigate volatility while maintaining equities as the primary conduit for long-term capital enhancement.
Beyond equities and gold, what additional asset classes should retail investors contemplate?
Retail investors should expand their investment vistas to encompass REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), emergent asset classes that have gained traction in recent years.
These instruments offer the dual advantage of capital appreciation and regular income through consistent cash flow distributions.
Furthermore, global allocation remains essential for geographical diversification and as a safeguard against rupee depreciation.
A combined allocation of approximately 20–30% toward these asset classes can facilitate steady income, bolster portfolio stability, and enhance risk-adjusted returns over the long haul.
For high-net-worth individuals (HNIs) and Ultra-HNIs, we also advocate prudent allocations to performing credit and private equity.
However, investors must tread cautiously, as performance dispersion across managers and funds is pronounced.
Manager selection becomes crucial in these segments.
We recommend pursuing these opportunities through a fund-of-funds structure, ensuring built-in diversification, institutional-quality manager selection, and access to otherwise elusive opportunities, all while mitigating concentration and execution risk.
Do you perceive AI and data centres as robust long-term themes? How can Indian investors access global AI stocks?
Indeed, artificial intelligence is unequivocally a secular, long-term theme. The expansive transformation across industries—encompassing productivity enhancement, automation, and data-driven decision-making—indicates that this shift is structural, not merely cyclical.
Nonetheless, from the perspective of Indian-listed equities, opportunities in pure-play AI remain limited, as preeminent innovations have predominantly occurred outside India, especially in the US.
That said, Indian IT services companies are making significant inroads in assisting global enterprises with AI deployment, workflow optimisation, and productivity advancements.
Thus, investors may participate tangentially through reputable IT services firms.
Data centres represent another compelling long-term theme. As AI adoption accelerates, demands for computational power, storage, and cloud infrastructure are structurally escalating.
While publicly listed opportunities in India are scarce, substantial activity is unfolding in the unlisted and private markets, especially regarding hyperscale and digital infrastructure.
For Indian investors aspiring to penetrate global AI domains, access has become significantly more feasible. They can utilise international brokerage platforms that enable direct overseas equity exposure. Additionally, regulated and tax-efficient investment frameworks based in GIFT City now offer routes to global equities.
Considering the pronounced volatility in returns and valuations inherent in the AI sector, adopting a diversified approach—whether through global ETFs or professionally managed funds—may prove more prudent than engaging in concentrated stock selection.
Source link: Livemint.com.
