Investors Advised to Deploy Half of Planned Equity Allocation Amid Market Uncertainty

Market Update: Veteran Fund Manager Advises Deployment of Equity Allocations Amid Geopolitical Risks

A recent note from 3P Investment Managers, co-authored by veteran fund manager Prashant Jain and co-fund manager Ashwani Kumar, has provided guidance to investors on navigating the current market landscape. Amid heightened concerns over tensions in the Middle East and the potential impact of higher crude oil prices on India's economy and markets, the fund house has maintained its constructive outlook on Indian equities.

The note projects annualised returns of 14-15 percent over the next three years, translating into cumulative gains of about 45-50 percent from current levels. This recommendation comes as Indian equities have undergone a "healthy" correction, with the market experiencing a roughly 20-month time correction and a 10 percent decline from the September 2024 peak. As a result, Nifty valuations have compressed by 22 percent, with the Nifty's one-year forward price-to-earnings multiple currently standing at 16.7 times, below its 10-year average of 17.8 times.

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Despite acknowledging that India's balance of payments (BoP) has faced pressure from FDI repatriation and increased stake sales by private equity investors and MNCs, the note argues that the broader macroeconomic backdrop remains resilient. The country's current account deficit has moderated to around 1 percent of GDP in FY25 and FY26, and even if crude oil averages $100 per barrel in FY27, India's oil import bill would increase by $45-50 billion, or about 1 percent of GDP.

The fund managers estimate that such a level would remain manageable for at least a year or two, supported by foreign exchange reserves of nearly $700 billion. Additionally, subdued activity in the primary market could provide support to equities, as weak investor appetite for IPOs and stake sales, coupled with muted issuance activity, could help improve net FDI inflows from near-zero levels seen over the past two years.

Jain and Kumar further note that as geopolitical tensions ease and oil markets stabilise, foreign investor selling is likely to moderate. They add that India's valuation premium over emerging markets has normalised and foreign investors remain underweight on the country, factors that could eventually support renewed inflows.

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On the geopolitical front, the note suggests that there are signs that the current ceasefire could evolve into a more lasting peace, which would serve as a positive catalyst for markets. However, it cautions that if peace efforts collapse and crude oil prices surge to $130-$150 per barrel, a 10-15 percent short-term correction in equities cannot be ruled out.

Even under such a scenario, the fund managers believe that the market's three-year return potential remains intact, supported by India's structural growth prospects and improved valuation comfort. They advise investors to deploy nearly half of their planned equity allocation of the next few quarters at current market levels and the balance when clarity emerges on the Iran situation either way.