'Stocks not immune to contagion': Why Emkay wants investors to stay defensive 

Emkay Global on Thursday said US tariffs have finally started to compound into stress across asset classes. It asked investors to increase their defensive exposure, recommending technology, pharmaceuticals, and private banking stocks, citing their low historic beta. The domestic brokerage said one may also trim exposure to smallcap and midcap stocks, given the inherent high beta and expensive valuations.

"We think this is a passing phase, with a high likelihood of the trade deal concluding within 3-6 months. The good news is that the domestic economy is gaining strength and the earnings cycle has turned in the last 1-2 months. From a long-term perspective, we remain constructive on Indian equities, with consumer discretionary our most preferred sector," Emkay said.

Emkay Global said there could be some relief for the next 8-10 days. The Fed cut is an incremental positive, especially with the Fed Chair Jerome Powell warning about the US economy slowdown raising hopes of further easing. 

It cited RBI measures announced on December 4 to start kicking in December 11, with Rs 1.45 lakh crore of durable liquidity added to this system in three tranches. This should support bond markets across maturities, it said.

"However, continued stress on the external account could swiftly negate such gains. We believe that the only durable solution to this negative cycle would be signing of the India-US trade deal, with substantial reduction in tariffs for Indian exports to the US (currently at 50 per cent tariffs for many categories)," it said. 

Till that happens, Emkay Global believes financial markets in India remain vulnerable to periodic sell-downs, and equities will not be immune to contagion.

On stock market, Emkay said the stress in financial markets is now spilling into equities. FPI flows are staying away due to currency fears, not to mention the relative attraction of other markets on growth and valuations. 

"We think domestic flows, especially on the retail front, have been affected by the domestic liquidity problem since the last couple of weeks. The vulnerability is reinforced by the relatively high valuations for Indian equities, with the Nifty trading at 20.3 times 1YF, 4 per cent above the LTA. Notably though, granular valuation metrics have cooled down – the share of stocks trading at +1sd above LTA has fallen from 43 per cent in October 2025 to 33 per cent as on December 2025," Emkay said.