The market still has hope for a US trade deal in the near future

Non-purchase of Russian oil by India will have an impact on global oil prices, and that will push up inflation in India. Alok Singh, CIO, Bank of India Mutual Fund

- Srushti Vaidya

India's equity market has not yet fully priced in the impact of the 50% tariff announcement by the US, and is holding its nerves on hope of an agreement, says Alok Singh, chief investment officer at Bank of India Mutual Fund.

In an interview with Mint, Singh warns that the country's failure to reach a "reasonable" deal with the US in the next few months could lead to a de-rating of export-heavy sectors that cater to the world's largest economy.

On the big picture, he says India may continue to see elevated valuations in Indian equities for some more time, with a gradual correction likely only if earnings growth falters for a sustained period.

Edited excerpts:

What are the triggers for the markets now?

Markets haven't been doing well primarily because earnings have been a bit of a concern, making valuations seem slightly expensive. That said, EPS (earnings per share) growth has been around 12-13%. But most of this has come from profit margin expansion and very less has come from the revenue growth, which the market doesn't like. Profit margins have a ceiling. Once you hit that, future EPS growth can only come from topline growth.

Revenue growth was struggling earlier due to lack of government spending, but things are now in repair mode. The government has taken measures like tax cuts and the RBI (Reserve Bank of India) has infused liquidity and reduced interest rates. The impact of these actions usually sees a lag, so the second half of the year should see a demand pickup. If that happens, revenue growth will likely follow.

The government also plans to implement a new pay commission for central government employees next year. Once that's formalized, spending patterns could improve that may support revenue growth, and in turn the markets.

Why have the markets not reacted to the 50% tariff announcement by the US?