Invest in quality stocks with strong business models amid global uncertainty: SBI Report

“Investors should focus on companies that have strong business models, clear earnings growth potential, and steady cashflows, especially during times of heightened macroeconomic instability,” according to the report by SBI Funds Management.

The report highlights that global financial markets have been shaken by the return of aggressive US trade policies under Trump 2.0, including steep tariff hikes. India has also been affected, with reciprocal tariffs of up to 27 per cent imposed on various sectors.

The risk of stagflation -- a mix of high inflation and slow growth -- also looms large, especially if the US economy slows down due to rising prices and reduced consumer sentiment.

Despite these challenges, the report notes some positive shifts in India’s market environment. The correction in equity prices and falling bond yields have brought market valuations closer to historical averages.

Sentiment, too, has returned to more neutral levels, making current market conditions more favourable for long-term investors.

The report adds that India’s central bank, the RBI, has been proactive in managing liquidity. Since December 2024, it has injected over Rs 8.9 lakh crore into the system, including open market operations and other liquidity tools.

These measures have helped ease market interest rates and improve overall transmission of monetary policy.

On the global front, the economic outlook remains mixed. While developed markets like Germany, Japan, and the UK have seen rising long-term yields, the US has maintained relatively steady rates.

The US Federal Reserve is expected to cut policy rates at least four more times, although the impact of ongoing tariffs and geopolitical tensions continues to be uncertain.

In India, the rupee has shown signs of recovery after a dip earlier in the fiscal year. Forex dynamics, capital flows, and RBI interventions will remain important in shaping liquidity and interest rates.

The report expects further easing of policy rates by the RBI in the upcoming review, though the central bank may maintain a neutral stance due to global uncertainties.

For debt investors, the SBI Funds report suggests that short-term bond funds and credit-oriented strategies could offer good opportunities, especially in the current low-rate environment.

It also highlights that hybrid investment products might be a safer option for those seeking stability amid equity market volatility.