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ICICI Pru's S Naren warns of a risk that no market, including India, can escape - BusinessToday

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  Published in Stocks and Investing on Saturday, November 8th 2025 at 23:35 GMT by Business Today
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ICICI Prudential’s S. Naren Issues a Stark Warning About Perpetual Risk in Global Markets

In a recent interview with Business Today, S. Naren, the Chief Investment Officer at ICICI Prudential Asset Management, cautioned that a risk‑laden environment has become the new normal for markets worldwide, including India. Speaking on November 9, 2025, Naren emphasized that no market can escape the pervasive risk factors that have emerged in the post‑pandemic era, and that investors must recalibrate their expectations and strategies accordingly.

The Global Risk Landscape

Naren identified several converging risk drivers that continue to weigh on equity and debt markets globally:

1. Persistent Inflation and Tightening Monetary Policy
   Central banks across advanced economies have continued to raise policy rates to curb inflation. The U.S. Federal Reserve’s recent rate hikes have pushed global borrowing costs higher, leading to higher discount rates for corporate cash flows and dampening equity valuations. This trend is mirrored in the European Central Bank and the Bank of England, creating a cohesive risk premium across all developed markets.

2. Geopolitical Tensions
   Ongoing conflicts, particularly the Ukraine war and the evolving security dynamics in the Indo‑Pacific, have introduced significant uncertainty into commodity supply chains and trade flows. These tensions also amplify currency volatility, especially in emerging‑market currencies that are sensitive to capital outflows during crisis periods.

3. Supply‑Chain Fragility
   The pandemic exposed deep vulnerabilities in global logistics. Despite improvements, bottlenecks at ports, reduced shipping capacity, and rising freight costs continue to exert upward pressure on import costs for many emerging‑market economies, including India.

4. Climate‑Related Risks
   Natural disasters, regulatory shifts, and the transition to a low‑carbon economy add an additional layer of systematic risk. Markets are increasingly pricing in potential climate‑related shocks, which can materially affect the financial health of firms in highly exposed sectors.

5. Regulatory and Fiscal Uncertainty
   In India, changes in corporate tax rates, fiscal stimulus, and regulatory reforms can create short‑term volatility for listed companies. The government’s focus on infrastructure and technology upgrades, while positive for long‑term growth, introduces transitional risks for businesses adjusting to new standards.

These factors collectively contribute to a heightened risk‑aversion sentiment among global investors, leading to a more defensive allocation style across portfolios.

India’s Unique Position in a Risk‑Heavy World

While India’s economy has shown resilience, with GDP growth projected at around 6.5 % in 2025 and a robust middle‑class expansion, Naren noted that Indian markets are not insulated from the global risk matrix.

• Capital Market Sensitivity
  Indian equity indices have historically been sensitive to global rate changes. For instance, the rise in U.S. Treasury yields has translated into lower discount rates for Indian corporates, thereby compressing valuations. Additionally, Indian debt markets have experienced upward pressure on yields as domestic investors rotate funds towards global risk‑off assets.

• Export‑Driven Growth and Commodity Exposure
  India’s export volumes are tied to global demand for manufactured goods. Any slowdown in advanced economies reduces import of Indian exports, affecting revenue streams for export‑oriented firms. Moreover, India’s dependence on imported oil and gas exposes it to volatility in global energy prices.

• Infrastructure and Policy Dynamics
  The Indian government’s focus on infrastructure investment, such as the National Infrastructure Pipeline, injects capital into the economy but also raises concerns about long‑term fiscal sustainability. Policy shifts in the corporate tax regime or foreign investment norms can create uncertainty for multinational corporations operating in India.

• Domestic Risk Premiums
  Naren highlighted that the Indian risk premium has been narrowing but remains elevated compared to its peer group. He pointed out that this premium can widen in periods of heightened global risk sentiment, thereby eroding expected returns for Indian equity investors.

Investment Implications and Strategy Adjustments

In light of these realities, Naren outlined a set of strategic considerations for investors, both institutional and retail, to navigate the persistent risk environment:

1. Diversification Across Asset Classes
   A balanced mix of equities, high‑quality bonds, and alternative assets can reduce portfolio volatility. Naren suggested maintaining a core exposure to global equities while allocating a defensive portion to fixed income and liquid alternatives such as cash or money market funds during periods of heightened market stress.

2. Focus on Fundamentals and Quality
   Companies with strong balance sheets, resilient cash flows, and sustainable competitive advantages are better positioned to weather volatility. Naren advocated for a rigorous fundamental screening process, emphasizing metrics like free‑cash‑flow yield, debt‑to‑EBITDA ratios, and return on equity.

3. Active Risk Management
   Employing tools such as beta hedging, volatility targeting, and dynamic position sizing can help mitigate downside risk. Naren recommended that fund managers adopt a systematic approach to risk monitoring, integrating macro‑economic indicators, market sentiment data, and scenario analysis into portfolio construction.

4. Geographic and Sector Rotation
   Shifting exposure between developed and emerging markets, and between defensive and growth sectors, can capitalize on relative strength. For example, when interest rates rise, defensive sectors such as utilities and consumer staples often outperform cyclical sectors like industrials and consumer discretionary.

5. Liquidity Considerations
   Maintaining a liquidity buffer is essential for opportunistic trading during market dislocations. Naren emphasized that liquidity stress can amplify losses, particularly for illiquid fixed‑income instruments or large‑cap stocks with thin trading volumes.

Broader Economic Outlook

Naren’s comments are echoed by other market analysts who stress that the risk factors identified are not one‑off events but an enduring feature of the current macro‑environment. The International Monetary Fund’s 2025 outlook indicates that global growth will be moderately muted, with a projected 4.5 % world GDP expansion. Meanwhile, the World Bank has highlighted that climate policy initiatives and geopolitical tensions are likely to continue driving uncertainty for the foreseeable future.

Within India, the Reserve Bank of India’s (RBI) policy stance has been accommodative to support economic activity, yet it remains cautious of a potential overheating scenario. The RBI’s latest inflation reports show that consumer price inflation remains within the 4 %–6 % target band, but there are concerns that commodity price spikes could press the inflation trajectory higher.

Concluding Thoughts

S. Naren’s stark warning serves as a reminder that risk is no longer a temporary blip but a persistent backdrop against which all investment decisions must be evaluated. While India’s growth prospects remain attractive, the country’s markets are inextricably linked to the global risk web. Investors who acknowledge this reality and adopt disciplined, fundamentals‑driven strategies are better positioned to navigate the turbulence ahead.

By emphasizing diversification, active risk management, and a focus on quality, Naren outlines a pragmatic framework that can help mitigate the impact of global uncertainties on Indian portfolios. As markets evolve, staying informed about the underlying risk drivers and maintaining a flexible investment stance will be crucial for achieving long‑term objectives in a risk‑heavy world.