Speaking to ET Now, Sridhar Sivaram from Enam Holdings said the biggest concern is the potential disruption in energy flows from the Gulf Cooperation Council (GCC) region, an important economic partner for India.
“Yes, if we all know where and how it ends, one can only hope that it ends quickly and that it is not for a long time because the Russia-Ukraine war, which was very much on the continent and it was literally landlocked, did not affect many people, apart from a small effect in Europe. It affects crude oil. I mean, we get 50% of the GCC and 50% of our LNG imports from there. Come on, if it’s going to last for a long time, just hope it lasts.
He added that the current situation is unlikely to return to full normality immediately and energy prices may remain high in the near term. “The general view is that it won’t last long and some sort of normalcy will return. I don’t think it will be 100% normalcy. So it will have an impact. I don’t see crude returning to the 60 handle in a hurry. Maybe it will come back when all the production comes back. But in the short term, it will be negative for our market which I would correct. Guess a lot of it is already priced in.”
Currency pressure has also become a talking point, with the rupee recently breaching the 92-dollar mark. Sivaram believes that Foreign Institutional Investors (FIIs) are taking a cut in India due to good income opportunities across Asia. “So, one of the other reasons for the selling of FIIs and the last 18 months is that Asia is going through a super period of earnings, I would say, this year, Korea… the market will have 100% earnings growth. Even like Taiwan will have 25% to 30% growth and that’s broadly in China’s supply chain of DAI and even RAM. The earnings growth is in the 15% to 18% bracket.
India, on the other hand, has struggled with slow profit growth over the past year and a half. “So, I think that’s the challenge that India has struggled with in the last 18 months with single-digit revenue growth. We think that revenue growth for next year, which is fiscal year 27, which starts now from April 1st, we can get close to 15% handle, which is good news. But when you compare it to Asia, when I talk to my old friends in New York, they say they are great. 20 times on While Taiwan, Korea and China are almost in single digits, it is challenging.
According to Sivaram, the relative attractiveness of other Asian markets could delay the return of foreign capital to India. “Korea has a lot of volatility, but this market is up 30% for the year. It’s up 30% year-to-date. So those are the challenges we’re facing. It’s going to take some time for FIIs to come back, that’s my view.” From a macroeconomic perspective, a broader concern is the heavy dependence of India’s trade on energy in the Gulf region. Sivaram pointed out that economic ties extend beyond just oil. “It’s very difficult to pinpoint exactly what the impact will be. Like I said, if it goes on for more than a month or two months, we’ll have a massive impact. The broad view is that it’s not going to happen, but we have an impact. As I said, if we import 50% of our crude oil from the GCC, about 30% or 40% comes from this region, 50% comes from LNG. Area, so we have a lot of macro We have touch points coming from GCC countries.
He noted that although only a few countries are involved in the war, its economic effects are spread throughout the region. “So unfortunately this has affected the whole GCC. It is a sad part that even though the war is between two countries or two half countries, it has affected the whole nation of the GCC, so it would be foolish to think that it will not have any effect.”
In the near term, companies exporting to the Middle East may face revenue uncertainty. “There will be a significant impact in this quarter because a number of companies are exporting a very fair percentage to this area. So we have to wait and see how it plays out. But my view is that it will settle down in a quarter. So I’m not saying it’s a buying opportunity or anything. You have to be more selective.”
Despite geopolitical risks, India’s benchmark indices have held up relatively well over the past year, even as the broader market remains under pressure. Sivaram said headline indicators sometimes mask underlying weakness. “So, actually, the Nifty is masking the problem that we have in the broader market. I mean, we all know that the broader market has seen significant pain. So, the Nifty has also been helped by a few sectors here and there.”
Looking ahead, he believes that earnings growth could recover somewhat due to a favorable base effect. “I think next year we’ll see 15% growth because we have a very low base effect. We’ve all had about six to eight quarters of single-digit revenue growth now. So it’s flipping because our base is low. So there’s opportunity. I’m just saying one has to be specific.”
One sector where Sivaram remains cautious is information technology. A sharp correction in IT stocks has sparked debate over whether the sector now offers value, but he believes structural challenges remain. “So, I have to say that in our own company, we have different opinions and these are my personal opinions. And I have been very negative about IT for two years because of the impact of AI and my broad opinion is, it’s not that these companies will die tomorrow, their revenues will be zero. The value of the terminal is decreasing.
He compared the situation to the change seen in the media industry over the past decade. “I give the example of the media sector. Go back 10 years and look at the big media companies and the idea was that OTT wouldn’t affect them. Do these companies still exist? Yes, are they profitable? Yes. But profit growth has been flat for the last five years. Their PEs are single digits. So it’s a scary scenario.”
Sivaram also highlighted the broader implications of the shift towards artificial intelligence for India’s technology sector and employment landscape. “It’s not just a problem for the IT sector, it’s a problem for large employment-related goods because of the total number of employees in that sector. You’re not hiring people. It has a second-derivative effect that’s huge.”
While AI has become a major investment topic globally, he believes that India currently lacks a clear opportunity for investors to participate in the trend. “I don’t think we have a clear AI game. I mean this is the ground reality. No FII is coming to India to play AI business. AI business as far as Asia or emerging market is concerned is in Korea, Taiwan and their earnings are real.”
For now, the message for investors seems to be one of caution rather than fear. With geopolitical risks, global competition for capital and sector-specific challenges in play, the market may continue to choose cautious stocks instead of broad-based buying.
