'Market assumes easy re-election for incumbent govt'

The recent spike in volatility, often observed preceding big events, is compounded by quarterly earnings and a renewed focus on China, according to PRATIK GUPTA, chief executive officer and co-head of Kotak Institutional Equities.

In an email exchange with Samie Modak, Gupta highlights that Indian markets are currently displaying signs of being relatively expensive, cautioning investors, particularly in the smallcap space. Edited excerpts: Volatility has spiked recently.

What, in your opinion, is driving this increase?

This phenomenon often precedes big events, such as India's election results on June 4. Additionally, we're witnessing sharp stockspecific reactions to companies' January-March quarterly results.

For foreign portfolio investors, it's the shifting expectations surrounding the timing of interest rate cuts by the Fed, coupled with renewed interest in China, and India's relatively high valuations, that are prompting foreign outflows and contributing to heightened volatility.

Smallcaps have recouped their losses. What has fuelled this rebound?

The resurgence in smallcaps is primarily fuelled by retail and wealthy investors, who have reaped strong gains over the past year. This investor segment appears optimistic about bold economic exercising caution amidst this buoyant sentiment. Some smallcaps exhibit minimal liquidity, making them susceptible to sharp declines in stock prices even with minor selling pressure.