1. What do you make of the stock market correction over the past six months? Please share your views on the impact of massive FII selling and the weakening rupee?
The Indian stock market has experienced a significant correction over the past six months, with the Sensex and Nifty falling by approximately 15%. This downturn has been driven by several factors, including massive Foreign Institutional Investor (FII) selling and a weakening rupee. FII outflows have been substantial, with over Rs 1.56 lakh crore being offloaded since October last year. This has led to increased market volatility and weakened investor sentiment.
The primary reasons for FII selling include rising US bond yields, which have made American assets more attractive, minor correction in GDP growth forecasts for India for FY2025 and FY2026, and geopolitical uncertainties.
The weakening rupee has further exacerbated the situation. A depreciating rupee increases the cost of imports, leading to higher inflation and a widening trade deficit. This has put additional pressure on the Indian economy, raising some concerns among foreign investors. While a weaker rupee can benefit export-oriented sectors, the overall impact on the economy has been negative due to increased import costs and inflationary pressures. In summary, the stock market correction has been driven by FII selling and a weakening rupee, both of which have created a challenging environment for investors.
The silver lining in the current scenario is that despite some correction, the GDP growth forecasts for India remains fairly robust at 6.4% each for the current fiscal year as well as the next. India continues to remain a fast growing large economy. And now valuations are getting more attractive.
2. Where are we headed in 2025 in terms of corporate earnings and economic growth?
In 2025, India’s corporate earnings and economic growth are expected to face a mixed outlook. Corporate earnings are projected to grow modestly, with Nifty earnings estimated to increase by around 9%. This marks the first instance of single-digit growth in the past five years, driven by moderated corporate earnings after several years of strong performance. However, a recovery is anticipated in the latter half of FY25, driven by increased rural spending, a vibrant wedding season, and higher government expenditure.
On the economic front, India’s GDP growth is projected to be around 6.4% for FY2024-25. This growth is supported by strong performances in key sectors such as manufacturing, construction, and financial services. Government spending and consumer demand are expected to play a crucial role in driving economic growth, with private final consumption expenditure projected to grow by 7.6%.
3. What are the top three sectoral themes that look attractive for investing at present?
Valuations in consumer staples have corrected meaningfully in the past 6 months. As we enter FY2026, the effect of higher income tax exemptions – and therefore higher disposable income in the hands of urban households will help boost consumption. Similarly, the rural spend has been seeing green shoots based on strong monsoon in the last season. Private Sector banks and select large public sector banks should benefit as RBI eases liquidity and costs of deposit remain in check. There is a possibility that companies in certain segments such as cement, which have seen corrections, may see a recovery if cyclical demand picks up and valuations remain more reasonable.
4. What are your expectations for the equity markets in 2025 across various indices?
After more than two years of solid equity market performance, including the recent correction, market returns in 2025 may be more modest. Although market valuations have adjusted to long-term averages, the earnings growth seen in FY23 and FY24 may not be repeated. That said, the market still appears healthy overall. There could be some potential opportunities, particularly in mid and small-cap stocks.
5. How do you plan to navigate tariff uncertainty as it unfolds? Do you believe we are heading toward an era of deglobalization, which, if it happens, could be detrimental to the equity asset class?
Ultimately, the tariff barriers are going to be a lose-lose proposition. The global supply chains are almost irreversibly integrated, and it will be a herculean and rather expensive task to ask corporations to redesign their sourcing at a short notice. Since the most unpalatable outcome of the tariffs is going to be high inflation and high interest rates, we believe that ultimately what will be implemented will be a fraction of what is being proposed.
Covered in the tariff barriers, are also the geopolitical objectives of larger economies. In that context, we believe that India will be a net beneficiary as it has deftly navigated the emerging geopolitical order. The supply chains of most large and medium multinational companies were already under redesign, and the current tariff related risks will only amplify those actions. Our hope is that India will continue to position itself favourably with our trading partners and global corporations and turn out to be one of the key beneficiaries during this period of churn.
