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 market had not seen a significant 10%+ correction in the past couple of years. The recent pullback over the last six months has been a healthy correction after an extended period of exuberance. While short-term volatility may feel uncomfortable, such corrections help recalibrate valuations and are a normal part of market cycles.
Foreign institutional investor (FII) selling has added to the volatility, but strong domestic inflows have provided a cushion. The rupee’s weakness has largely been driven by global capital flows and external pressures. While a softer rupee raises import costs and inflation risks, it also enhances the competitiveness of export-oriented businesses. Overall, while FII outflows and currency fluctuations present short-term challenges, the economy’s underlying fundamentals remain strong, which is a positive.
2. Where are we headed in 2025 in terms of corporate earnings and economic growth?
As we look ahead to 2025, earnings expectations need to be recalibrated. Based on recent earnings trends, we believe India Inc. could deliver 10-12% earnings growth in CY2025, broadly in line with nominal GDP growth.
Corporate earnings are expected to benefit from a revival in capital expenditure—both from the government and the private sector—supported by stronger balance sheets and improved operational efficiencies. Key growth drivers include demographics, digitalization, infrastructure development, financialization, and the expanding middle class.
Global factors such as synchronized rate cuts and easier monetary policies across major economies could further support this outlook. However, risks remain, including geopolitical uncertainties and inflationary pressures. In 2025, the key to stock selection is likely be more bottom-up than top-down, meaning individual company fundamentals will matter more than broad sectoral trends. Businesses with resilient models, prudent capital allocation, and improving return on equity (RoE) will be key contributors to earnings growth.
3. What are the top three sectoral themes that look attractive for investing at present?
1. Financials: Large private banks have demonstrated resilience with stable asset quality and remain well-positioned for future growth. Regulatory policies could also turn more supportive, particularly if interest rates decline further. Additionally, capital market trends suggest a favorable shift in investor sentiment.
2. Consumer Services: Changing consumer preferences from traditional products to value-added services are creating growth opportunities in retail, healthcare, digital platforms, and financial services. Rising disposable incomes and evolving consumption patterns are driving demand in these segments.
3. Capex-driven Sectors (Infrastructure, Manufacturing, Utilities): With increasing investment demand, these sectors stand to benefit the most. As India’s power needs rise alongside urbanization and industrial expansion, companies in power generation, transmission, and distribution are well-positioned for long-term growth.
Together, these themes reflect structural trends in the economy. Our investment approach remains more of bottom up v/s top down (i.e. theme/sector agnostics). Our focus has been towards companies with earnings growth, prudent capital allocation, and improving RoEs. Marrying that with the right risk-reward that these companies offer, through our time tested BMV (Business, Management and Valuations) framework is what has worked for us in the long run and we strive to continue the same.
4. What are your expectations for the equity markets in 2025 across various indices?
We remain bottom up in our approach. That said, this approach today throws up a lot more names today in the large cap market space. Even when you look at this at the market cap index level, large-cap indices seem to offer better valuation comfort, notwithstanding intermittent bouts of volatility—a reflection of both global uncertainties and resilient domestic fundamentals. Small and Mid-cap indices (particularly the latter), meanwhile, are still trading at premium to their own historical valuations and hence don’t offer as much risk reward on a relative basis.
A disciplined investment strategy will be essential to navigate market cycles. While short-term bargains may be limited, the long-term growth story remains intact. Market performance in 2025 is expected to depend on earnings quality, supportive macroeconomic policies, and sustained domestic inflows.
With improving fundamentals across several companies, we anticipate a gradual, steady uptrend in the medium to long term. However, short-term volatility will likely persist due to FII flows, currency pressures, and geopolitical developments, making active management crucial.
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?
Tariff uncertainty, along with broader debates around deglobalization, is an important factor we monitor closely. In the face of evolving trade policies and tariff adjustments, we aim to continuously reassess our exposure, particularly in sectors vulnerable to global supply chain disruptions.
While tariff uncertainties may introduce short-term volatility, we expect a recalibration where companies enhance local supply chains and focus on domestic growth. This shift could actually open up opportunities, especially for sectors such as manufacturing and infrastructure that are well positioned to benefit from increased local production.
