India could see rebound in investor interest when AI-led rally slows: S Naren

Sankaran Naren, executive director and CIO at ICICI Prudential Mutual Fund, shared insights on the Indian market with Prashant Mahesh. With lump-sum investors losing money and SIP investors only making modest returns over the past two years, Naren emphasized the importance of focusing on asset allocation and moderate returns. He highlighted that the US AI cycle is driving much of the global market, and while global equity markets are expensive, there remains potential for correction.

Naren noted that while sectors connected to US AI are currently overvalued, he believes Indian equity markets could see a rebound in investor interest when AI-led growth begins to slow, as capital may turn to markets with stronger domestic growth prospects. Regarding IPOs, Naren expressed caution, stating that they are trading at higher prices than many established companies and pointing to a larger bull market in IPOs compared to the broader market.

When asked about sectoral allocations, Naren favored private-sector banks, insurance, and the recently proposed regulatory changes in the insurance industry, seeing growth potential in these areas. However, he cautioned about the challenges in IT and FMCG sectors due to limited growth. In terms of earnings growth over the next three years, Naren expected near-term decent growth driven by inflation and its impact on consumer purchasing behavior.

In the medium term, earnings growth would depend on the trajectory of the US AI cycle; a potential shift towards deflation could impact company earnings and consumer spending patterns. Finally, Naren advised a cautious approach to investing overseas, emphasizing the need to consider currency risks and the current strong performance of global markets before making momentum-driven investment decisions.