The persistent uncertainty surrounding a potential India-United States trade agreement is emerging as a significant factor behind the Indian rupee's weakness, foreign capital outflows, and the subdued performance of the domestic equity market this year. According to market expert Sonam Srivastava, while the delay is a sentiment dampener, it does not pose an immediate macroeconomic shock to India's resilient, domestically-driven economy.
Market Struggles to Sustain Momentum
In an exclusive interview, Sonam Srivastava, Founder and Fund Manager at Wright Research PMS, shed light on the current market dynamics. She pointed out that the market structure is currently defined by high headline resilience but weak internal breadth. Major indices are being propped up by a handful of large-cap stocks, while the broader market experiences consistent profit-taking.
Srivastava identified several core reasons why gains are not holding. A key divergence exists between optimism about real economic growth and more modest nominal growth, which limits earnings visibility. Furthermore, liquidity conditions are tighter compared to the past few years, and global fund flows are being deployed tactically rather than with long-term conviction. With valuations, particularly in mid and small-cap segments, having run ahead of near-term earnings, the market remains vulnerable to negative surprises.
"In such a structure, rallies tend to be sold into rather than extended, resulting in a choppy, range-bound market rather than a sustained uptrend," Srivastava explained.
Navigating Volatility and Trade Uncertainties
Addressing investor strategy, Srivastava advised against aggressive, all-at-once buying but also cautioned against staying completely on the sidelines. Volatility creates dispersion, offering opportunities for long-term investors. The recommended approach is a staggered allocation with a clear focus on companies with strong balance sheets, visible earnings, and reasonable valuations.
On the delayed India-US trade pact, she clarified that its impact is more psychological than fundamental. "A delayed India–US trade deal is more of a sentiment overhang than an immediate macro shock," she stated. While export-oriented sectors might face slower order momentum, India's growth is now predominantly driven by domestic demand. The primary effect is on foreign investor confidence, which values policy certainty. However, if domestic demand, capital expenditure (capex), and credit growth stay robust, the equity market can absorb these delays without major structural damage.
Looking Ahead: Themes, IT, and Budget Expectations
For the coming year, Srivastava anticipates a focus on earnings normalisation rather than valuation expansion. Key themes will include domestic manufacturing, capex-linked sectors, financialisation of savings, and premium consumption. While Artificial Intelligence (AI) will continue to dominate discussions, the narrative will shift from promise to actual monetisation, separating companies with real execution capabilities from those riding the hype.
Regarding the Indian IT sector, she noted a move from earnings downgrades towards gradual stabilisation, though a sharp rebound is unlikely soon. Stock selection is critical, with a preference for firms strong in client mining and cost-takeout deals. Investors should accumulate quality stocks during weakness rather than chase rallies.
For the ongoing Q3 earnings season, Srivastava expects steady but not spectacular growth, with margins under pressure in some sectors. Markets will likely react more to management commentary on future demand than to headline numbers.
Finally, for Budget 2026, the market expects continuity and fiscal discipline. Key expectations are a sustained focus on capital expenditure, measures supporting manufacturing, and a credible fiscal consolidation path. A growth-supportive yet prudent budget will be more valuable than headline-grabbing announcements for maintaining investor confidence.
