Speaking to ET Now amid a broader market sell-off, Shenoy offered a candid assessment of the factors hurting Indian equities and where patient investors should look.
Macro is the real story, not earnings
Despite the red on the screens, Shenoy points out that the fundamental picture is not as grim as market action suggests. Mid and smallcap companies reported an average revenue growth of 17-18% over the previous year’s quarter, hardly a fall.
“Over the last one year we have been troubled by macro over- and under-earnings,” he says, “and I don’t think that will change in the coming days.”
The macro cocktail is potent: no Iran-US deal in sight, surging crude prices, a delayed and below-normal monsoon, building inflation risks, and GDP uncertainty hanging over markets ahead of RBI data. Shenoy does not rule out interest rate hikes in future policy cycles if inflation continues to rise, markets are not fully pricing in.
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However, its base case is more constructive. If the geopolitical situation subsides and oil prices fall below $80 by the end of the year, India should be in a significantly better position. “Any changes we make now will probably be reflected in equity valuations in two to three years’ time,” he says. “We have to live with this instability.”
₹2.25 lakh crore gone: Meaning of FII exodus
One of Shenoy’s most striking data points is the sheer scale of foreign outflows, with ₹2.25 lakh crore in the current year alone, a combined ₹3.9 lakh crore in 2025 and 2026.
His explanation goes beyond India-specific concerns. The US And rising bond yields in the West, which offer 5.5-6% on long-term paper, are pulling pension funds and institutional investors away from riskier emerging market equities. “If you can guarantee an 8% return with a large bond portfolio, why stay in risky equities?” That explains.
The silver lining? Domestic SIP flows have cushioned the blow, preventing 30-40% of the crash that unchecked FII sales could otherwise cause. The rupee also showed some stability, improving around 97 to 95.
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“The rupee is undervalued right now,” notes Shenoy. “Correction in USD-INR may actually help foreign investors look at India more meaningfully.”
But he is candid about the limitations of his forecast: He expected FII selling to stop for six to eight months, and that has not happened. “I can’t say I’ll be right next month,” he admits.
Pharma over IT; But watch for opposite plays
On sector allocation, Shenoy points out a clear difference. Pharma is their hedge bet of choice, with net exporters benefiting from rupee depreciation, whose earnings remain resilient regardless of the global macro cycle.
IT, by contrast, faces a double squeeze: AI disruption at home, and customers abroad freezing or delaying tech spending amid their own macro concerns. That said, Shenoy acknowledges that the risk-reward improvement in IT stocks has seen investors willing to wait, as opposed to a sharp de-rating.
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For long-term investors, Shenoy’s message is clear: valuations of individual stocks and sectors are better today than they were a year ago. Volatility is uncomfortable, but it is where opportunities are created.
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