'West Asia conflict duration, oil price trajectory hold key for markets'

Equity, by its nature, Rashesh Shah, CMD, Edelweiss Financial Services believes, is not a one- or two-year asset class, it represents ownership in businesses that compound over a decade.

Puneet Wadhwa New Delhi

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Foreign investors have preferred to stay away from the Indian markets over the last few months amid valuation concerns, AI-related worries and the war in West Asia. Rashesh Shah, chairman & managing director, Edelweiss Financial Services, tells Puneet Wadhwa in an email interview that over multiple market cycles, some of the strongest outcomes have typically come from staying invested through such phases rather than reacting to them. Edited excerpts:

You have seen many stock market cycles. What are the similarities and differences you see in this one – the West Asia war and now the 15-day ceasefire – with any other bearish phase the markets have been through?

Well, yes, the stock market has gone through many cycles since the start of my career in 1989 when the Sensex was at 680. There was the Harshad Mehta aftermath, the dotcom bust, 2008, the IL&FS crisis, and Covid. Each cycle had a different trigger, but the emotional texture was always the same – in the middle of it, the pessimism feels permanent. It never is.

What makes this phase distinct is the layering. You have a geopolitical shock in West Asia, an energy supply disruption through Hormuz, aggressive FII selling, currency pressure, and a valuation reset – all arriving together.

In 2008, the shock was largely financial and psychological. During Covid, the impact was biological and societal in nature. This time, it is geopolitical and energy-led, which hits India’s current account and fiscal math simultaneously. That said, the structural foundation – domestic savings, formalisation, digitisation – is far stronger today than in any previous downturn, which provides a resilient cushion through such phases.

The Reserve Bank of India maintained status quo on rates in its policy on April 8 but cautioned against the West Asia war impact. What’s your reading of the statement?

The key variable is the duration of the West Asia conflict and what happens to oil prices from here. If crude stays above $100 for a sustained period, central banks face a very uncomfortable policy mix – slowing growth and sticky inflation at the same time. That is a stagflation-like scenario.

We see a situation where policy responses may diverge. The US Fed may hold firm on rates given its inflation mandate, while the RBI may prioritise growth and currency stability. This divergence creates volatility, but it also means there is no single global risk-off event – it is more regional and rotating. The old comfort of India’s synchronised global easing may not be available this time.

Do you think the government’s policy support amid the West Asia war has been too late and too little?

In a fast-moving geopolitical crisis, policy response at times may look late in hindsight but may not actually be the case. Let’s look at what has been done: excise duty on fuel was cut by ₹10 per litre, diesel duty brought to zero, export levies imposed to protect domestic supply, and the RBI has been active on currency management. The annualised fiscal cost of the fuel duty cut alone is estimated at over ₹1.5 lakh crore. These are not small steps.

If the conflict is prolonged, there may be more targeted interventions – support for energy-intensive sectors, facilitation of alternative crude sourcing, and calibrated liquidity measures. The priority should be to prevent a temporary external shock from turning into a domestic demand contraction. On that front, the government’s instincts and directions have been right.

In the last two years, headline indices haven’t done much. Is equity as an asset class losing its attractiveness?

It’s really about perspective. What we are seeing is time correction doing the work that price correction did not fully address. Markets appear to be absorbing the excesses of 2021–23 through a phase of consolidation rather than a sharp drawdown. That is actually a sign of maturity – it means domestic capital is providing a floor.

Equity, by its nature, is not a one- or two-year asset class, it represents ownership in businesses that compound over a decade. We use a balanced method - what we call the bifocal approach: invest for the long-term, manage the short-term. India’s savings-to-investment journey is still in the early innings.

Mutual fund SIP flows have stayed resilient even through March, which tells you that a whole generation of investors now understand this. Easy returns are over, and selectivity matters more. But the asset class itself is more relevant than ever.

What is an ideal investment strategy now?

Avoiding any extreme decisions, the right approach would be asset allocation, not prediction. Keep adequate liquidity, stagger equity exposure through SIPs and staggered lump sums, and focus on businesses with strong balance sheets and pricing power.

Cash has a role – but as optionality, not as a permanent thesis. The real risk is not the mark-to-market volatility of the next quarter, but the loss of discipline that often may come with it – stepping away from long term compounding in response to near term noise. Over multiple market cycles, some of the strongest outcomes have typically come from staying invested through such phases rather than reacting to them.

Is the ‘India equity story’ over for foreign investors — both FX and valuation-wise?

The India story will never be over – it is a compounding story, it doesn’t stop, it builds. What has changed is the pace and the entry math. With the rupee in the 93-94 range and Indian equities trading at a premium to most emerging market peers, expected dollar returns become more measured. That naturally makes FIIs valuation-conscious. But structural stories do not end because of one weak quarter of currency moves.

At the same time, India today is far less dependent on foreign flows than it was even ten years ago. Domestic institutional and retail capital has scaled up enormously. That is a structural shift. For global investors, India may move from being a high-beta momentum trade to a more considered, long-duration allocation. That, in many ways, is a healthier place for the market to be.

How are your retail and HNI clients dealing with dismal returns? Are they still willing to invest in equities?

There is caution, but I would not call it capitulation. Retail investors now are fundamentally different from 2008. A large number have entered through SIPs, which means they are process-driven, not event-driven.

HNI clients are looking more closely at diversification – alternatives, credit strategies, gold, and structured products – but that is not an exit from equity. It is portfolio construction becoming more sophisticated.

What is encouraging is that the quality of conversation has improved. Clients are not asking “when will markets recover?” They are asking “how should I allocate across this environment?” That is a meaningful shift, and it reflects the maturing of India’s investor base.

What’s your vision for the Edelweiss group for the next 3–5 years? What will be your USP versus peers?

Our vision is clear: build Edelweiss as an unbundled, well-governed financial platform with independent businesses, strong boards, and disciplined capital allocation. Each business – alternatives, mutual fund, insurance, credit – has its own leadership, its own governance, and its own path to value creation.

In the near term, we are preparing to list EAAA, our alternatives platform, which manages close to ₹68,000 crore in AUM. Our mutual fund equity AUM has crossed ₹83,000 crore. The insurance businesses are on a clear path to breakeven, and we have reduced consolidated net debt significantly.

The USP is straightforward: an asset-light, low-leverage platform built for long-term compounding, not short-term momentum. In a market like this, that approach speaks for itself.

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First Published: Apr 08 2026 | 12:01 PM IST