Daily Voice: Global reset creates opportunities, Fed to hold rates in October, says Groww's Nirav Karkera

He recommended focusing on structural themes that extend beyond any single market cycle, including India’s investment cycle in power, infrastructure and defence; the push towards electronics manufacturing; and the steady growth of domestic consumption and financial savings. Well-managed banks and financial companies, which have corrected despite maintaining healthy balance sheets, also warrant closer attention.

Fixed income presents another opportunity, as higher interest rates allow investors to lock in attractive yields after a prolonged period of relatively low returns, Karkera said in an interview with Moneycontrol. Here are edited excerpts: Are we witnessing a global reset? What changes can we expect? Yes, but it is a reset in the cost of money and the direction of capital, not a breakdown in growth.

The era of cheap money is behind us. Major central banks are raising rates again, and bond yields have moved higher across the world. Energy and geopolitics, especially the Middle East, are now the biggest swing factors for inflation and markets. At the same time, AI has become the world’s largest investment theme, pulling global money toward technology-heavy markets. Going ahead, we should expect money to cost more for longer, investors to be more selective about where they put capital, governments to focus on energy and supply-chain security, and market leadership to keep rotating.

The encouraging part is that global growth forecasts are actually improving, so this is a repricing phase rather than a recessionary one. If a global reset is underway, what key opportunities should investors be looking at and avoid missing? Every global reset rewards investors who stay patient and focus on quality, and this one is no different. The first opportunity is valuation. Indian equities have spent two years consolidating while earnings kept growing, so the market today is far more reasonably priced than at its peak.

Phases like this have historically been good times for long-term investors to build positions. The second opportunity is structural themes that are bigger than any single cycle. These include India’s investment cycle in power, infrastructure and defence, the manufacturing push in electronics, and the steady rise of domestic consumption and financial savings. Well-run banks and financials, which have corrected despite healthy balance sheets, also deserve a closer look.

The third opportunity is in fixed income, where higher interest rates let investors lock in attractive yields for the first time in a while. Alongside this, a modest allocation to gold continues to provide some stability in uncertain times. What investors should avoid missing is the discipline of staying invested: continuing SIPs, buying in stages and keeping a diversified mix. The real risk in a reset is not volatility, or even a lack of it, but sitting out the recovery that usually follows.

Do you anticipate changes to LTCG or STT? What would be the impact? We think a change is a genuine possibility. The government has signalled that it is open to hearing views, and the sustained selling by foreign investors has added urgency to the discussion. However, capital gains tax is now an important source of revenue, so we expect any relief to be calibrated rather than sweeping. That could mean a higher exemption limit, some easing of STT on derivatives, or allowing STT to be adjusted against capital gains tax.

A lower STT would mainly boost trading volumes and liquidity. LTCG relief would improve post-tax returns for long-term investors and make India more competitive for global capital. That said, tax is only one part of the picture. Foreign interest will also depend on the rupee, global interest rates and earnings delivery. Any relief would lift sentiment, but on its own we would not expect it to reverse flows.

Will India’s growth-inflation dynamics remain favourable? We believe growth remains India’s clear strength. Economic activity is robust, business indicators are firm, and India continues to be among the fastest-growing large economies. Inflation has picked up, mainly because of food prices, but it is still within the RBI’s comfort band. The RBI has acted early and in a measured way, which we see as a positive because it protects the growth story over the medium term.

The key factors we would watch are crude oil prices and developments in the Middle East, the monsoon and its impact on food prices, movement in the rupee, and how quickly higher fuel costs reach consumers. If oil prices cool and the new crop arrives as expected, we expect inflation to ease in the second half of the year. What policy measures and reforms would attract greater foreign investment? India’s long-term investment story is intact, and recent steps to open up sectors and ease investment rules are encouraging.

For portfolio investors, we would prioritise a stable and simpler capital gains regime, predictable tax policy, easier registration and disclosure norms, deeper access to the bond market and active management of rupee volatility. For direct investment, the focus should be on faster implementation of labour and land reforms, quicker contract enforcement and dispute resolution, more trade agreements, and lower logistics and power costs.

The common thread across all of this is predictability. When global capital is demanding higher returns, certainty is what improves India’s margin of safety and brings money in. Will the Fed hold in October and hike in December? Our base case is that the Fed will hold rates steady in October and raise them in December. Policymakers have indicated that another hike this year is likely. However, softer inflation data and a weaker jobs report have reduced the urgency to move immediately, and the timing just ahead of the US midterm elections also argues for patience.

The factors we would watch are inflation trends, the strength of the job market, oil prices and the direction of long-term bond yields. An October pause would be mildly positive for flows into emerging markets like India. What the Fed signals in December about next year’s path will matter more than the hike itself. Is this the right time to accumulate IT stocks? For long-term investors, we believe yes, gradually and selectively.

A lot of the bad news is already in the price. IT stocks are trading well below their historical valuations, and dividend yields are attractive, so investors are effectively paid while they wait. Recent results also show early signs of stability, with healthy deal wins and some companies sounding more confident about growth. That said, overall growth is still slow, and the impact of AI on pricing is a structural shift that will take time to settle.

So rather than expecting a quick rebound, we would build positions in stages over the next few quarters. Companies that are successfully turning AI opportunities into revenue, along with mid-sized firms showing stronger growth, look better placed. Management commentary on demand in the second half of the year will be the key thing to track.