Geopolitical risks not that strong to challenge RBI's rate cut logic

I would say Indian equities are fully valued. The Nifty is trading at about 21x one-year forward earnings. R. Janakiraman CIO-emerging markets India, Franklin Templeton

- Dipti Sharma

Investors don't seem overly spooked by the geopolitical situation, said R. Janakiraman, chief investment officer-emerging markets India, Franklin Templeton Asset Management (India) Pvt. Ltd, which manages equity assets worth ₹1.04 trillion as of May end.

The recent geopolitical risks do not seem strong enough to derail the Reserve Bank of India's (RBI) rate cut logic, he told Mint in an interview.

But, he said that if the tensions escalated significantly, then India's risk premium could rise.

Besides, he believes a key risk to equity returns in 2025 is the heavy supply from initial public offerings (IPOs), qualified institutional placements (QIPs) and promoter sell-downs, a trend that surfaced in late 2024 and contributed to the market's decline.

Edited excerpts:

Are the recent tensions between Iran and Israel making clients anxious about investing in equities?

It is still early, so I haven't surveyed clients informally yet on their reaction to geopolitical tensions. I suspect they view it through market performance—if markets stay stable, concerns remain low. So far, markets have been fairly resilient, keeping nervousness among Indian investors limited. If news like rising crude prices hits, nervousness could increase. How investors react in such scenarios remains to be seen, but for now, they don't seem overly spooked by the geopolitical situation.

How seriously could this West Asia conflict impact the Indian markets, especially in view of the US involvement?

There are two ways to look at the ongoing West Asia tensions. In the short term, geopolitical risks have risen, but market reactions—especially in oil—suggest concerns are limited. Oil futures for the next 6-12 months have returned to pre-conflict levels, suggesting that the spike is expected to be temporary.