India's equity markets are navigating one of their toughest macro environments in recent memory, and Deepak Shenoy, Founder and CEO of Capitalmind MF, believes investors need to separate short-term noise from long-term opportunity.Speaking to ET Now amid a broad market sell-off, Shenoy offered a candid assessment of the forces battering Indian equities, and where patient investors should be looking.Macro is the real story, not earningsDespite the red on the screens, Shenoy points out that the fundamental picture is not as dire as the market action suggests. Mid and smallcap companies have delivered median earnings growth of 17–18% over the previous year's quarter, hardly a collapse."We have been battered by more of macro and less of earnings in the last one year," he says, "and I do not think that will change in the coming days."The macro cocktail is potent: no Iran-US deal in sight, crude prices spiking, a delayed and below-normal monsoon, inflation risks building, and GDP uncertainty hanging over markets ahead of RBI data. Shenoy does not rule out interest rate hikes in future policy cycles if inflation continues to climb, a scenario markets are not fully pricing in.You Might Also Like:His base case, however, is more constructive. If the geopolitical situation de-escalates and oil corrects to below $80 by year-end, India should be in significantly better shape. "Whatever changes we do now will probably reflect in equity valuations over a two to three-year period," he says. "We have to live with this volatility."₹2.25 lakh crore gone: Making sense of the FII exodusOne of the most striking data points Shenoy flags is the sheer scale of foreign outflows, ₹2.25 lakh crore in the current year alone, with a combined ₹3.9 lakh crore exiting in 2025 and 2026.His explanation goes beyond India-specific concerns. Rising bond yields in the US and the West, offering 5.5–6% on long-dated paper, are pulling pension funds and institutional investors away from riskier emerging market equities. "If you can assure an 8% return with a bigger bond portfolio, why stay in risky equity?" he explains.The silver lining? Domestic SIP flows have cushioned the blow, preventing the kind of 30–40% crash that unchecked FII selling might otherwise cause. The rupee, having corrected from 97 to around 95, is also showing some stabilisation.You Might Also Like:"The rupee is undervalued right now," Shenoy notes. "A correction in USD-INR may actually help foreign investors look at India more meaningfully."But he is candid about his own forecasting limits: he has been expecting FII selling to stop for six to eight months, and it hasn't. "I cannot say I will be right next month," he admits.Pharma over IT; but watch for contrarian playsOn sector allocation, Shenoy draws a clear distinction. Pharma is his preferred defensive bet, net exporters benefiting from rupee depreciation, with earnings that remain resilient regardless of the global macro cycle.IT, by contrast, faces a double squeeze: AI disruption from within, and customers abroad freezing or delaying tech spending amid their own macro anxieties. That said, Shenoy acknowledges that the sharp de-rating in IT stocks has improved the risk-reward for contrarian investors willing to wait.You Might Also Like:For long-term investors, Shenoy's message is clear: valuations across individual stocks and sectors are better today than a year ago. The volatility is uncomfortable, but it is also where opportunities are built.