First Global founder Devina Mehra projects potential gains for Indian equities over the next two years, citing historical recovery patterns following stagnant periods. She advises investors to diversify 30-40% of portfolios into global assets to hedge against rupee depreciation. Additionally, she cautions against the high valuations currently seen in the artificial intelligence sector.
Indian stock markets, which have seen little growth over the past two years with the Sensex and Nifty 50 shedding 7% and 6% respectively, may be setting the stage for a recovery. Devina Mehra, founder and CMD of First Global, recently highlighted that historical data points toward a potential rebound. She noted that after periods of market stagnation lasting two years, annual returns have historically averaged 25%, often ranging between 5% and 55%.
Mehra suggests that the current consolidation phase should not be viewed as a structural problem. Instead, she posits that the probability of outperformance over the next 24 months remains high, offering a contrast to the high-priced market sentiment witnessed in 2024. This outlook suggests that patient investors often see benefits when markets move out of sideways or flat trends.
Beyond domestic equities, Mehra emphasizes the importance of geographic diversification. She points out that India accounts for less than 3% of the total global market capitalization. Relying entirely on a domestic portfolio could expose investors to unnecessary risks, particularly those related to currency. She suggests that investors consider moving 30% to 40% of their capital into international assets to help protect their purchasing power against the long-term trend of rupee depreciation against major global currencies.
While her outlook on the broad market remains optimistic, Mehra expressed skepticism regarding the current investment craze surrounding artificial intelligence. She categorized the massive flow of capital into AI-focused assets as a potential bubble, suggesting that prices in this sector have detached from fundamental value. As an example of her concern, she referenced companies like SpaceX, noting that investors in such ventures often face extreme valuations while lacking basic governance rights, such as voting power. She warned that if the AI trend faces a correction, assets in this space could experience significant value erosion in the coming one to two years.
For investors, the key takeaways involve monitoring how the domestic market exits its consolidation phase and the role of currency risk in long-term wealth management. Balancing a domestic portfolio with global assets serves as a strategy to mitigate risks associated with the local currency. Meanwhile, the caution regarding the AI sector serves as a reminder to check valuation and governance structures before allocating capital to high-growth, high-hype sectors.