PGIM India's Aniruddha Naha on Risks to Indian Equities and Opportunities in Smallcaps

PGIM India's Aniruddha Naha warns that sharp rises in crude oil prices could pose a risk to India's economic stability. He suggests taking some money off midcaps given its high valuations and remains positive on the revival of the investment cycle and consumption, especially lower-ticket discretionary spending. Alternate strategies offer flexibility and the ability to build differentiated portfolios with low overlaps with benchmarks, generating alpha in small-cap stocks and potentially becoming part of mainstream investing as per capita GDP rises.

June 17, 2025

PGIM India's Aniruddha Naha, a seasoned market expert, recently cautioned investors about potential risks to India's economic stability posed by sharp rises in crude oil prices. In an interview, Naha underscored the importance of maintaining a balanced portfolio, particularly advising investors to be cautious with midcap stocks due to their high valuations. He also highlighted the potential for the revival of the investment cycle and consumption, especially lower-ticket discretionary spending.

Naha emphasized that the current macroeconomic fundamentals in India are strong, which is reflected in the positive outlook for financial markets. However, he warned that high crude oil prices could have a significant impact on the economy, given India's heavy reliance on imports. The country currently meets over 95% of its oil needs through imports, and any disruption in the global oil market could lead to increased inflation and economic instability [1].

The expert advised investors to be selective in their investments, particularly in midcap stocks. He noted that while largecaps and smallcaps offer good investment opportunities, midcaps currently have high valuations that could make them riskier. Naha suggested taking some money off midcaps to reduce exposure to potential market volatility.

Despite the caution regarding midcaps, Naha remains optimistic about the broader market. He expects FII inflows to continue benefiting largecaps initially, but eventually, the positive momentum could spread to midcaps and smallcaps. The expert also highlighted the potential for a revival in the investment cycle, driven by rate cuts and improved consumption trends. He particularly mentioned sectors like financials, capital goods, and discretionary consumption as areas to watch.

Naha's advice underscores the importance of diversification and flexibility in investment strategies. He suggested that alternate strategies could offer investors the ability to build differentiated portfolios with low overlaps with benchmarks, potentially generating alpha in small-cap stocks. As per capita GDP continues to rise, these strategies could become more mainstream.

References:
[1] https://economictimes.indiatimes.com/industry/energy/oil-gas/india-to-lead-global-oil-demand-growth-add-1-mn-bpd-by-2030-iea/articleshow/121909631.cms