Broader market may be outpacing earnings: Ajay Garg from SMC decodes market risks
As Indian markets navigate global uncertainty, elevated valuations and shifting macro trends, investors are watching closely for cues on what lies ahead.
- May 29, 2026,
- Updated May 29, 2026 1:05 PM IST
As Indian markets navigate global uncertainty, elevated valuations and shifting macro trends, investors are watching closely for cues on what lies ahead. In an exclusive interaction with Business Today, Ajay Garg, Director & CEO at SMC Global Securities, shares his views on market valuations, Q4 earnings, gold, rupee weakness, FII flows, crude oil volatility and India’s booming IPO market.
BT: Indian markets are hovering near record highs despite global uncertainty — do you see this rally sustaining, or are valuations running ahead of fundamentals? Garg: We believe the framing may not accurately reflect the current market situation. The statement that ‘Indian markets are hovering near record highs’ appears inconsistent with recent market performance, as Indian stock markets have witnessed a correction of nearly 10 per cent from their recent peak.
BT: Q4 earnings have been largely mixed so far — are corporate India’s earnings strong enough to justify current market valuations? Have earnings expectations become too optimistic after the recent rally? Garg: The Q4 earnings have shown a mixed performance across several sectors, with banks, capital goods, and certain manufacturing firms demonstrating relative strength, whereas the IT and export-oriented sectors continue to experience challenges.
There is an expectation of earnings growth in the range of approximately 10-12 per cent for several sectors, however, there are apprehensions that the projections for FY27 could be overly optimistic, if global demand continues to decline.
Besides, there is an expectation that we may see earnings downgrades in the upcoming quarters due to geopolitical uncertainties, rising input costs and a slowdown in global economic growth. Consequently, while the current valuations for quality large cap stocks may still be reasonable, segments of the broader market seem to be outpacing the actual delivery of the earnings.
BT: Gold prices have remained elevated amid global uncertainty — should Indian investors increase allocation to gold, or is profit-booking likely at higher levels? Garg: Gold continues to gain from Geopolitical uncertainty, purchases by central banks, concerns regarding inflation, and a depreciating rupee. With fluctuations in crude oil prices and ongoing global conflicts strengthening safe haven demand, gold prices have remained high both globally and in India. However, following a significant surge, short-term profit taking cannot be dismissed, particularly if geopolitical tensions diminish or the US dollar finds stability.
Some allocation towards gold is sensible as a protective measure rather than as a speculative high return investment. The increase in gold imports in India and the weakness of the rupee have also played a role in driving domestic gold prices. Investors should refrain them from aggressively pursuing momentum at these current high levels.
BT: The rupee has shown signs of weakness against the dollar — how big a concern is this for Indian markets, particularly sectors dependent on imports? Garg: The depreciation of rupee is a significant concern for sectors reliant on imports, including aviation, chemicals, oil marketing firms, electronics and auto components, as it leads to increased input and fuel expenses. India relies on imports for nearly 85 per cent of its crude oil needs, making the economy susceptible to simultaneous increases in oil prices and the dollar’s value. A weaker rupee may also increase imported inflation and exert pressure on corporate profit margins.
At the same time sectors such as IT services and pharmaceuticals could gain from currency depreciation due to their revenue being largely derived from exports. The primary risk arises if the rupee's decline becomes chaotic, particularly in accordance with ongoing foreign institutional investor outflows and high crude oil prices.
BT: With crude oil volatility and intermittent FII outflows returning, could global macros derail the India growth story in the near term? Can domestic inflows continue to offset FII selling, or are markets vulnerable if foreign investors turn aggressive sellers?Garg: The global macroeconomic factors continue to pose the most significant short-term threat to Indian stock markets. The increase in crude oil prices, geopolitical uncertainties, rising U.S. bond yields and ongoing foreign institutional investor outflows may lead to considerable volatility.
In 2026, FIIs have pulled out a handsome amount from the Indian stock market, indicating a cautious stance towards emerging markets. However, domestic investments through SIP's and mutual funds have increased. This domestic engagement has emerged as an important stabilising element for Indian markets. However, if foreign selling increases significantly amid rising crude prices and a depreciating rupee, the markets could experience substantial corrections despite strong domestic inflows.
BT: India’s primary market remains red hot with strong IPO demand — are investors chasing momentum, or is there still genuine value in new listings? Garg: India's IPO market raised a record Rs 1.8 lakh crore in FY26 with 219 listings, making it one of the strongest years on record. However, average listing gains have moderated sharply to around 8 per cent compared with nearly 28 per cent in the previous year, indicating that investors are becoming more selective.
There still remains authentic value in firms that have strong business models, clear profitability prospects and fair pricing, however, there has also been a rise in speculative involvement in lower quality assets. Investors are refraining from making decisions solely based on grey market premiums or short-term listing profits, and should instead concentrate on fundamentals, valuations, and the outlook of the sector prior to investing in IPOs.
As Indian markets navigate global uncertainty, elevated valuations and shifting macro trends, investors are watching closely for cues on what lies ahead. In an exclusive interaction with Business Today, Ajay Garg, Director & CEO at SMC Global Securities, shares his views on market valuations, Q4 earnings, gold, rupee weakness, FII flows, crude oil volatility and India’s booming IPO market.
BT: Indian markets are hovering near record highs despite global uncertainty — do you see this rally sustaining, or are valuations running ahead of fundamentals? Garg: We believe the framing may not accurately reflect the current market situation. The statement that ‘Indian markets are hovering near record highs’ appears inconsistent with recent market performance, as Indian stock markets have witnessed a correction of nearly 10 per cent from their recent peak.
BT: Q4 earnings have been largely mixed so far — are corporate India’s earnings strong enough to justify current market valuations? Have earnings expectations become too optimistic after the recent rally? Garg: The Q4 earnings have shown a mixed performance across several sectors, with banks, capital goods, and certain manufacturing firms demonstrating relative strength, whereas the IT and export-oriented sectors continue to experience challenges.
There is an expectation of earnings growth in the range of approximately 10-12 per cent for several sectors, however, there are apprehensions that the projections for FY27 could be overly optimistic, if global demand continues to decline.
Besides, there is an expectation that we may see earnings downgrades in the upcoming quarters due to geopolitical uncertainties, rising input costs and a slowdown in global economic growth. Consequently, while the current valuations for quality large cap stocks may still be reasonable, segments of the broader market seem to be outpacing the actual delivery of the earnings.
BT: Gold prices have remained elevated amid global uncertainty — should Indian investors increase allocation to gold, or is profit-booking likely at higher levels? Garg: Gold continues to gain from Geopolitical uncertainty, purchases by central banks, concerns regarding inflation, and a depreciating rupee. With fluctuations in crude oil prices and ongoing global conflicts strengthening safe haven demand, gold prices have remained high both globally and in India. However, following a significant surge, short-term profit taking cannot be dismissed, particularly if geopolitical tensions diminish or the US dollar finds stability.
Some allocation towards gold is sensible as a protective measure rather than as a speculative high return investment. The increase in gold imports in India and the weakness of the rupee have also played a role in driving domestic gold prices. Investors should refrain them from aggressively pursuing momentum at these current high levels.
BT: The rupee has shown signs of weakness against the dollar — how big a concern is this for Indian markets, particularly sectors dependent on imports? Garg: The depreciation of rupee is a significant concern for sectors reliant on imports, including aviation, chemicals, oil marketing firms, electronics and auto components, as it leads to increased input and fuel expenses. India relies on imports for nearly 85 per cent of its crude oil needs, making the economy susceptible to simultaneous increases in oil prices and the dollar’s value. A weaker rupee may also increase imported inflation and exert pressure on corporate profit margins.
At the same time sectors such as IT services and pharmaceuticals could gain from currency depreciation due to their revenue being largely derived from exports. The primary risk arises if the rupee's decline becomes chaotic, particularly in accordance with ongoing foreign institutional investor outflows and high crude oil prices.
BT: With crude oil volatility and intermittent FII outflows returning, could global macros derail the India growth story in the near term? Can domestic inflows continue to offset FII selling, or are markets vulnerable if foreign investors turn aggressive sellers?Garg: The global macroeconomic factors continue to pose the most significant short-term threat to Indian stock markets. The increase in crude oil prices, geopolitical uncertainties, rising U.S. bond yields and ongoing foreign institutional investor outflows may lead to considerable volatility.
In 2026, FIIs have pulled out a handsome amount from the Indian stock market, indicating a cautious stance towards emerging markets. However, domestic investments through SIP's and mutual funds have increased. This domestic engagement has emerged as an important stabilising element for Indian markets. However, if foreign selling increases significantly amid rising crude prices and a depreciating rupee, the markets could experience substantial corrections despite strong domestic inflows.
BT: India’s primary market remains red hot with strong IPO demand — are investors chasing momentum, or is there still genuine value in new listings? Garg: India's IPO market raised a record Rs 1.8 lakh crore in FY26 with 219 listings, making it one of the strongest years on record. However, average listing gains have moderated sharply to around 8 per cent compared with nearly 28 per cent in the previous year, indicating that investors are becoming more selective.
There still remains authentic value in firms that have strong business models, clear profitability prospects and fair pricing, however, there has also been a rise in speculative involvement in lower quality assets. Investors are refraining from making decisions solely based on grey market premiums or short-term listing profits, and should instead concentrate on fundamentals, valuations, and the outlook of the sector prior to investing in IPOs.