As global markets grapple with heightened geopolitical risks, trade disruptions and persistent volatility, the role of stability in portfolios is becoming increasingly important.
In an interaction with Kshitij Anand of ETMarkets, Vineet Agrawal, Co-Founder of Jiraaf, says that as India aspires to become a $10–20 trillion economy, fixed income can no longer remain a peripheral asset class for investors.
He believes predictable cash flows, diversification benefits and a more balanced tax structure could make bonds and other fixed income instruments central to long-term portfolio construction.
Agrawal also shares his views on why short-term market volatility is here to stay, how investors should think about risk across time horizons, and why a more level playing field between equity and debt taxation could mark a turning point for fixed income investing in India. Edited Excerpts –
Kshitij Anand: Well, global geopolitics appears to be undergoing a major realignment, with new alliances forming and old equations being tested. How is this reshaping market risk perception globally?
Vineet Agrawal: Yes, you are absolutely right. Today, we are living in a world where the entire geopolitical situation is very uncertain. Businesses across countries were used to operating in a particular manner, which is now being challenged on a daily basis. This is what is leading to uncertainty across the world. Markets tend to price this uncertainty very aggressively, whether because of new trade frameworks, new tariffs, or supply chain rerouting that the entire world is currently undergoing. Until we have more clarity at a global geopolitical level—about how business will be conducted or what tariff structures between countries will look like—I personally feel that market premiums will remain elevated and there will be volatility across global markets for these reasons.
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Kshitij Anand: Another term that is often used is the VUCA world — volatility, uncertainty, complexity, and ambiguity. That is the kind of world we are living in at this point in time. How does declining global confidence typically affect capital flows into emerging markets like India, especially during risk-off phases?
Vineet Agrawal: Whenever global confidence weakens, investors typically shift from growth-oriented economies to safer and more liquid assets. Emerging markets like India experience the impact of this shift. In our country, we have seen that over the last three to four years, FIIs have been net outflows. Although a lot of this was compensated by domestic investors, due to significant outflows, the market has not delivered strong returns over the last two years. I believe that over time, stronger trade linkages between multiple countries—which our government is already working towards—will help. This could lead to FII inflows from regions such as the EU or other developed economies where we have FTA-type relationships. That, in turn, can stabilise capital inflows and rebuild investor confidence.
Kshitij Anand: Equity markets are often the first to reflect uncertainty. How are global and Indian equities bearing the brunt of these overlapping risks today?
Vineet Agrawal: Equity, by its very nature, is forward-looking and highly sensitive to uncertainty because it is driven by sentiment. With global geopolitics being uncertain, there are energy concerns and growth concerns across the world. Today, businesses are unsure about cost impacts, margin implications, and how demand and supply will evolve in the future. When the future is uncertain in all these aspects, it naturally reflects in equity valuations.If I speak specifically about Indian equities, while we have strong domestic growth and are among the fastest-growing economies in the world, we are not completely insulated from global risks. We are still dependent on what is happening globally, which is why corrections and volatility are emerging in the market when long-term fundamentals are clouded by uncertainty.
Kshitij Anand: Although we have been able to secure what has been called the “mother of all deals” with the FTA recently signed with the EU, it remains to be seen how the Indian government will tackle US tariffs. That is something which is still unanswered at this point in time. This uncertainty is being reflected in equity markets as well over the past few months. Since COVID, markets have shown that strong long-term returns can co-exist with repeated sharp corrections. How should investors interpret this contradiction?
Vineet Agrawal: If you are a long-term investor with an investment horizon of seven or ten years, you have to be prepared for instances of sharp market corrections. However, being a long-term investor, this should not impact your decision-making, and there is a reasonable chance of wealth creation over the long term.
If you look at this from a short- to mid-term perspective, investment decisions need to be reconsidered because you are not sure how the market will behave over the next two or three years. But if you have a long-term horizon, I think you can make your investment decisions with relatively high confidence.
Kshitij Anand: Why do short- and medium-term portfolio allocations tend to feel more pressure during volatile phases, even when the long-term equity narrative remains intact?
Vineet Agrawal: Long-term equity allocations have time to recover from corrections. If you have invested for seven or ten years and there is a short-term correction, you still have time—three, four, or five years—for the market to recover.
However, short- to medium-term allocations are more exposed to market timing and liquidity. For example, someone who invested at the start of COVID in 2020 would have made decent returns after five years. But someone who invested in 2023 would have hardly made any return in the last two years. Timing becomes important if you have a short- to medium-term horizon.
In the long term, the importance of timing and liquidity in your portfolio is lower. Given the current global uncertainty and trade disruptions, if you need your capital within the next three years, you need to rethink your investment strategy.
Kshitij Anand: We have another important event coming up — Budget 2026 — which is approaching at a time when global uncertainty is already elevated. Why do such policy events often add to short-term market volatility?
Vineet Agrawal: The Budget is an important event for any country, and rightly so for India as well. Typically, the government outlines its plans for fiscal spending, taxation policies, and sector priorities for the coming year.
Markets attempt to price these announcements based on expectations versus what is actually declared. Uncertainty arises when market expectations differ from what the government announces, or when there is misalignment between the two. Until this uncertainty is resolved, markets tend to remain volatile, as seen in past data and records.
This volatility usually moderates once policy details are absorbed and expectations are reset. Until that happens, we expect volatility—along with geopolitical uncertainty—to continue, and this will be reflected in the markets as well.
Kshitij Anand: In this environment of geopolitical risk, trade uncertainty, and market volatility, why are fixed income instruments increasingly discussed as a stabilising element within portfolios?
Vineet Agrawal: In times of uncertainty, investors look for diversification rather than growth alone so that their core portfolio remains stable. Today, the only instruments that can provide that kind of stability are fixed income instruments. Other investments, whether equity or commodities, are extremely volatile.
Investors want a portion of their portfolio that offers predictable cash flows, where they can confidently estimate short- to medium-term returns, unlike equity or commodity markets, which are highly volatile. This is why, over the last year, people have started giving greater importance to fixed income instruments as part of their core portfolio strategy, regardless of market conditions—and even more so in today’s environment.
Kshitij Anand: Talking about fixed income, investment-grade corporate bonds carry fixed coupon rates and defined repayment schedules. How does this structure introduce predictability into portfolios during uncertain times?
Vineet Agrawal: What these instruments provide is the ability to estimate exact cash flows over a specific period, compared with market-linked instruments where future cash flows are uncertain. This is the key reason why this asset class is critical from an overall portfolio perspective.
It does not replace growth assets like equity or commodities; rather, it balances the portfolio. Especially during volatile phases, predictable cash flows reduce the need to sell equity or commodities at a loss. You can build a portfolio where you know the cash flow you will receive and can ride out volatility for a few years, since both equity and commodities are long-term investments.
For stability and predictable cash flows, corporate bonds with fixed coupon rates and defined repayment schedules add significant strength to a portfolio.
Kshitij Anand: Within the investment-grade universe, yields vary across AAA to BBB-minus rated bonds. How should investors understand risk-return trade-offs without assuming that higher yield always means lower safety?
Vineet Agrawal: We are generally conditioned to believe that AAA-rated bonds are safer and BBB-rated bonds are less safe. However, beyond just focusing on ratings, investors should also take a deeper look at the tenor of the bond, the issuer, and their track record in bond issuance and repayments. These factors play an important role.
They should also assess the underlying sector. For example, a BBB-plus rated company with a gold loan portfolio will have a different risk profile compared to a BBB-plus rated company with a microloan portfolio. Investors should go one step deeper and not simply assume that higher yield always means higher risk or that lower yield always means safer returns.
Kshitij Anand: We are talking about predictability, and my next question is also related to that. How do predictable cash flows from bonds complement equity-driven portfolios, especially when market returns become uneven?
Vineet Agrawal: Equity, by its nature, tends to be uneven and sentiment-driven. During uncertain periods, even long-term investors will see years of steady gains followed by sharp declines of 20% or 30%, which may take two or three years to recover. Cash flows from equity are therefore uneven.
Bonds, by nature, provide relatively steady cash flows through periodic, predefined coupon payments. From a portfolio perspective, this helps investors meet short-term liquidity needs without having to exit equity or commodity positions. It allows them to remain long-term investors.
As global trade reshapes and we reach a phase where business rules become clearer, volatility and uncertainty should reduce. Until then, having bonds or fixed income as part of the portfolio is a smart approach. The objective is to spread risk across different asset classes, and this is how investors should look at it.
Kshitij Anand: Finally, with the Budget approaching, do you have any expectations from it from a fixed income perspective as well?
Vineet Agrawal: Yes, one of the ongoing discussions is that our request to the government is to reduce the taxation gap between equity and debt. If this happens, more people will be inclined to invest in fixed income as part of their portfolios, and that is something we look forward to from the government.
Kshitij Anand: So, you are looking for a more level playing field?
Vineet Agrawal: Yes, because that would be appropriate from a portfolio perspective. Even globally, this is the practice.
We believe that as India moves towards becoming a developed economy and aspires to be a $10 trillion or $20 trillion economy, this could be a tipping point from a fixed income perspective.