After sharp rally in gold and silver, what’s the next haven? Himanshu Kohli of Client Associates explains

As global trade dynamics are changing rapidly and policy actions gaining pace in India, Indian markets are at an important turning point. Trade discussions between India and the United States, and between India and the European Union, along with the recent Union Budget and volatility in global markets, are creating both fresh opportunities and short-term uncertainty for investors.

In this interaction with BT, Himanshu Kohli, Co-founder of Client Associates, explains how trade deals could benefit certain sectors, where valuations stand in large, mid, and small-cap stocks, and how retail investors can approach 2026. He also shares his views on gold and silver, foreign investor flows, the rupee’s movement, and the key risks investors should keep in mind in a volatile global environment.

Q). How could the ongoing and proposed trade deals between India and the US, and between India and the EU, impact Indian stock markets? Which sectors or themes are likely to be the biggest beneficiaries, and are there any sectors that could face near-term pressure?

Himanshu Kohli: The ongoing and proposed trade deals between India and the US, and between India and the EU, provide a boost to the India economy and Indian assets at large by soothing a long-standing geopolitical friction, reducing tariff uncertainty, improving market access for exporters, and encouraging deeper supply‑chain integration.

The market reaction has been upbeat leading to a rally in equity markets post the US trade deal announcement even as the broader contours of the deal are still awaited. Over the medium term, the impact is expected to show up in earnings upgrades for many export-oriented businesses on the back of improved access and enhanced scale.

The biggest beneficiaries are likely to be export‑oriented sectors such as textiles, agro‑commodities, chemicals, gems and jewellery, and seafood, as well as electronics and auto‑ancillaries that stand to gain from manufacturing incentives and easier market access. Capital goods, engineering, and infrastructure firms should also benefit from cross‑border projects and technology transfer, while pharmaceuticals and biopharma could see improved regulatory cooperation and R&D partnerships.

Sectors that could face near‑term pressure include domestic businesses that have relied on tariff protection, import‑competing manufacturers may see margin compression if cheaper foreign goods enter the market, and companies with limited pricing power will need to accelerate productivity improvements.
 
Q). What are the key takeaways for the markets from this Budget and which sectors do you think are likely to benefit the most?

Kohli: The Union Budget 2026-27 maintained a fine balance between long-term growth and policy continuity while centring on three key duties- accelerating growth, fulfilling aspirations, and ensuring inclusive access. On fiscal discipline, the government projected the Gross Fiscal Deficit for FY27 at 4.3% of GDP, a slight improvement from 4.4% in FY26, which is seen as structurally positive for controlling inflation.

The Budget also maintained its strong push for infrastructure, with capital expenditure expected to rise 9% to ₹12.2 trillion, including significant allocations for railways at ₹2.9 lakh crore and defence at ₹5.9 lakh crore. To boost domestic manufacturing, new initiatives such as the Biopharma SHAKTI program, worth ₹10,000 crore, and the Indian Semiconductor Mission 2.0 were introduced to strengthen high-tech production ecosystems. 

Additionally, the Budget is forward-looking, as the government has introduced reforms in areas such as AI, data centres, semiconductors, and the orange economy. These measures indicate a significant shift towards digital infrastructure, which will serve as the future growth engines of the economy. However, the capital markets were spooked by the increase in Securities Transaction Tax (STT) on derivatives, leading to a drawdown on the budget day. We believe this is a structurally strong step to reduce speculative activities in the F&O segment by retail investors though may lead to some near-term impact.
 
Q). How do you see current valuations in Indian equities, especially in mid- and small-cap stocks? In this environment, where should retail investors consider putting fresh money?

Kohli: Indian equity valuations offer a mixed picture at this stage post the time correction witnessed in the last 17 months. While large-cap stocks are closer to historical averages, mid and small-cap segments continue to trade at relatively elevated valuations despite recent corrections.

The indices mask the pain as the median stock returns in the index are much lower compared to the respective indices. However, the earnings seem to have bottomed out in H1FY26 with expectations of mid double-digit earnings for benchmark indices over next two years. Given this environment, investors should prioritise quality businesses with strong balance sheets, consistent earnings visibility, and reasonable valuations.

Phased investments through systematic routes and a tilt towards diversified funds or established leaders may offer better risk-adjusted outcomes than aggressive bottom-fishing in smaller stocks. Maintaining a cash buffer for volatility and rebalancing opportunities is prudent.
 
Q). Gold and silver prices have seen sharp moves amid global uncertainty. How do you assess current valuations in precious metals, and is there any other asset class that can still act as a safe haven for investors in this environment?

Kohli: Gold and silver have rallied sharply in the last 12-18 months amid global uncertainty, supply-demand dynamics, weakening dollar and stretched investor positioning. They saw a sharp pullback at the end of January end triggered by a rebound in real yields post the announcement of Kevin Marsh as the new Fed chair. After sharp moves in either direction, both metals are likely to experience consolidation and heightened volatility. 

Gold remains a portfolio hedge structurally, but position sizing is important and should be aligned to the strategic asset allocation of the investors as per their individual risk profile. Investors with a relatively low risk appetite can take exposure to low-duration debt funds for capital preservation and hybrid funds that provide downside protection while still offering return potential.
 
Q). Foreign investor flows have been volatile. Which global factors are you tracking that could influence FPI inflows over the next few months?

Kohli: Flows from foreign investors into India remain highly sensitive to global macro developments – including interest rate trajectories (particularly in the US), relative growth prospects vis-à-vis Emerging Markets, currency movements, valuations and geopolitical events.

The recent US trade deal announcement marks a key milestone, driving a reversal in FII trends. February has seen net inflows of INR 15,338 crore to date. Further flows will be contingent to earnings revival, policy stability and relative valuations compared to other emerging markets.
 
Q). The rupee’s depreciation is often seen as both a risk and an opportunity. How are you factoring its impact into your sector and stock selection?

Kohli: We view the rupee’s depreciation as both a risk and an opportunity, and our investment approach is designed to balance these dynamics through meaningful international exposure. We emphasize geographical diversification by allocating investments across multiple regions, thereby reducing reliance on any single economy or currency.

Currency diversification further strengthens portfolios by providing a natural hedge against rupee weakness, ensuring resilience in our investments when foreign currencies appreciate. In addition, we guide clients on leveraging regulated avenues such as GIFT City which enable seamless participation in global markets through Liberalised Remittance Scheme (LRS) while remaining compliant with Indian regulations.

By combining domestic opportunities with international investments, we aim to transform potential risks into avenues for growth, delivering stability and long-term wealth creation for our clients. For domestic allocations, we believe the sector and stock fundamentals should be a primary factor for taking investment decisions rather than merely the currency outlook.
 
Q). What key risks should retail investors watch out for in 2026, especially in mid- and small-cap stocks amid global uncertainty?

Kohli: Earnings expectations for the mid- and small-cap segments remain robust over the next two fiscal years, even though valuations are still elevated. However, retail investors should remain cautious of several key risks associated with this segment. Concentrated ownership and limited liquidity can magnify price swings and make earnings disappointments more severe.

Policy changes or tariff shocks stemming from trade negotiations can quickly alter competitive dynamics across sectors which smaller companies may find tough to navigate. Mitigants include rigorous due diligence, strict position limits, stop‑loss discipline, and a preference for companies with strong governance, robust cash flows, and healthy balance sheets.

The earnings expectations for mid and small-cap segment is fairly strong for the coming two fiscal years even as the valuations remain elevated. However, retail investors should watch out for several key risks: concentrated ownership and limited liquidity can amplify price moves and make earnings disappointments more damaging.

Policy or tariff shocks from trade negotiations can rapidly change competitive dynamics across various sectors, volatile foreign flows and currency fluctuations can exacerbate downside in less liquid names. Mitigants include rigorous due diligence, strict position limits, stop‑loss discipline, and a preference for companies with strong governance, robust cash flows, and healthy balance sheets.
 
Q). The Sensex, midcap, and smallcap indices have delivered muted returns over the past year. What is your outlook for 2026?

Kohli: We remain constructive on Indian Equities in 2026 on the back of policy support, reasonable relative valuations, strong earning revival, fruition of trade deals and improving domestic demand. However, the path may include bouts of volatility tied to global macro developments and FPI flows. Large caps should lead on greater margin of safety for both valuations and earnings as well as potential resumption of FII flows.

As we mentioned above, while the earnings expectations for Mid & Small cap segment is fairly strong, the valuations remain elevated and any earnings disappointments could lead to higher volatility. Overall, we remain optimistic and believe disciplined investing focused on quality and long-term fundamentals will continue to reward investors.