Rajiv Aggarwal prefers domestic cyclicals as global markets remain focused on AI trade

ET Now spoke to Rajiv Aggarwal, market expert at Doordarshi India Fund, on the evolving global macro landscape, where artificial intelligence, geopolitics and energy markets are shaping sharply divergent equity trends across regions. According to him, the AI-led investment cycle is one of the strongest global tailwinds, particularly benefiting economies deeply embedded in semiconductor and advanced technology supply chains. He noted that markets such as Korea, dominated by players such as Samsung and SK Hynix, are moving meaningfully due to direct exposure to demand for memory chips and AI infrastructure. In contrast, India has not meaningfully participated in this wave, largely because it lacks a strong presence in the semiconductor ecosystem, which has contributed to its relative underperformance in global capital flows.

On the sustainability of this trend, Agarwal emphasized that the AI ​​cycle still has room to run as long as the underlying models continue to improve and deliver tangible value to investors and enterprises. He pointed out that developments in large AI models reinforce capital allocation towards semiconductor-heavy economies, keeping the theme intact for the foreseeable future. According to him, this structural deviation is one of the main reasons why India is not the market of choice for global investors in the current cycle.

Turning to energy markets, Agarwal addressed concerns about elevated crude oil prices and ongoing geopolitical tensions in West Asia, particularly around the Strait of Hormuz. While crude remains elevated above $100 per barrel, he suggested that the situation may gradually move towards de-escalation in the coming weeks. He explained that global oil mobility is constrained by limited strategic reserves, necessitating some sort of diplomatic arrangement. He also highlighted recent restrained responses among key geopolitical actors, suggesting that, despite rising risks, total disruption has so far been avoided. Additionally, he pointed to the role of key global stakeholders, including China’s energy dependence and diplomatic leverage, as factors that could contribute to easing tensions over time.

On equity markets, Agarwal observed that global indices, particularly in the US, are already reflecting expectations that geopolitical disruptions will not continue indefinitely. US equities, including the Nasdaq and S&P 500, posted mid-to-high single-digit gains, while Indian equities lagged, especially when measured in dollar terms. He noted that higher oil prices have not yet fully filtered through to corporate earnings in India, suggesting a knock-on effect on profitability. However, he maintained that India’s underlying economic trajectory remains strong, with the country expected to maintain growth of over 6% in FY27, with incomes likely to recover in the medium term as macro pressures stabilize.

From an investment perspective, Agarwal highlighted a clear shift towards domestic-oriented opportunities in India. He said the recent market correction, particularly around March, has allowed investors to accumulate quality businesses at more attractive valuations. Their focus is on sectors linked to domestic growth rather than an export-driven theme, given strong visibility on domestic demand. Renewable energy, particularly solar and wind, is a key area of ​​interest due to India’s push for energy independence and infrastructure policy support. Financial and capital markets are also important allocation areas, while selective opportunities are being evaluated in less crowded segments such as cash management. Overall, their strategy reflects a preference for domestic consumption-driven businesses, which they believe are better positioned to perform consistently in the current environment.

The broader market picture, outlined in the discussion, reflects a clear divergence in global equity leadership. AI-linked economies continue to dominate, semiconductor ecosystems continue to attract capital and geopolitical factors are adding volatility to energy markets. Against this backdrop, India’s underperformance appears more cyclical and sectoral rather than structural, with revenues and flows likely to improve as global conditions stabilize over time.