US Market Correction is Biggest Risk for India, Says ICICI Prudential CIO S Naren

S Naren, Chief Investment Officer at ICICI Prudential AMC, has warned that the biggest risk to global markets, including India, is a potential sharp correction in the US market, especially concerning AI stocks. He explained that since the US market constitutes nearly 60% of global indices, a significant decline there would inevitably impact other markets. While Naren believes India might perform better on a relative basis due to its recent underperformance, he cautioned that absolute market valuations worldwide are currently very high, making future movements uncertain. He drew a parallel with the dot-com bubble, stating the risk lies with AI stocks rather than the AI technology itself, recalling how internet stocks crashed despite the internet's long-term success. Naren also highlighted a shift in market dynamics, with domestic investors now shouldering the responsibility of absorbing supply, as foreign institutional inflows have become minimal compared to previous years. He indicated that sustained domestic inflows through SIPs, coupled with reduced selling pressure, could trigger a rally. For India's next growth phase, Naren stressed that foreign inflows will be crucial, suggesting a potential return of FIIs as net buyers within the next 12 months.

Impact: A sharp downturn in the US market could lead to a broad-based correction in Indian equities, impacting investor sentiment and portfolio values. However, consistent domestic investor participation provides a stabilizing factor. The return of foreign capital is identified as a key catalyst for the next significant market rally. Rating: 7/10

Difficult Terms:

AI Stocks: Shares of companies engaged in the development, production, or deployment of Artificial Intelligence technologies. Dot-com bubble: A period in the late 1990s and early 2000s characterized by rapid growth and subsequent collapse of internet-related companies' stock values. Domestic investors: Individuals and entities within India that invest in the country's financial markets. Foreign institutional investors (FI/FII): Investment funds and institutions based outside India that invest in Indian securities. SIPs (Systematic Investment Plans): A disciplined method of investing a fixed amount of money in mutual funds at regular intervals. PE selling: Refers to the sale of shares by Private Equity firms, which invest in companies not listed on public exchanges with the aim of selling them later for profit.