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 recent stock market correction over the past six months should be seen as a long-overdue reset after a sustained rally over the past few years. Following the sharp post-COVID bull run, valuations in several sectors had reached stretched levels, making the correction a natural part of the market cycle.
One of the primary drivers of this downturn has been aggressive foreign institutional investor (FII) selling, triggered by rising U.S. bond yields, a stronger U.S. dollar, and global risk-off sentiment. As capital chases higher returns in developed markets, emerging markets like India have witnessed persistent FII outflows. Additionally, the weakening rupee has intensified volatility, making Indian assets relatively less attractive to global investors while increasing input costs for import-heavy industries.
However, this correction should not be mistaken for a structural weakness in the Indian economy. Domestic institutional investors (DIIs) and retail participation have provided significant liquidity support, absorbing much of the FII outflows. Moreover, India’s long-term growth fundamentals remain intact, backed by strong corporate earnings, robust domestic demand, and government-led capital expenditure. As global uncertainties ease and valuations become more reasonable, we could see a renewed FII interest in Indian equities, setting the stage for the next phase of growth.
2. Where are we headed in 2025 in terms of corporate earnings and economic growth?
India’s economic outlook for early 2025 remains strong and resilient, with GDP growth expected to stay in the 6.5–7% range, driven by rising consumption, capital investments, and improved fiscal spending. A key driver of this growth will be the pick-up in rural demand, which has been sluggish in recent years due to high inflation and weak agricultural incomes. However, with inflation moderating, higher minimum support prices (MSPs), increased government welfare spending, and a rebound in rural employment, the rural economy is set to improve. This will boost overall consumer sentiment, leading to higher household spending and stronger domestic demand.
On the corporate earnings front, profitability is expected to remain on a growth trajectory, with companies benefiting from operating efficiencies, moderating input costs, and stable interest rates. The revival in rural consumption, coupled with sustained urban demand, will provide a broad-based boost to revenue growth across industries. At the same time, India’s improving macroeconomic indicators, strong fiscal discipline, and policy-driven investments will continue to support corporate expansion. While global uncertainties, such as monetary tightening and geopolitical risks, may create intermittent volatility, India’s internal growth drivers remain well-positioned to sustain a healthy economic and earnings trajectory throughout 2025.
3. What are the top three sectoral themes that look attractive for investing at present?
Top Attractive Sectoral Themes for Investment in India
1. Manufacturing & Industrial Growth (PLI & China+1 Theme)
India’s Production-Linked Incentive (PLI) scheme and the China+1 strategy are driving a major expansion in manufacturing. Global companies are looking to diversify supply chains away from China, positioning India as a preferred manufacturing hub in sectors like electronics, auto components, specialty chemicals, and capital goods. With rising domestic consumption and increased exports, government incentives, and private capex cycles picking up, manufacturing remains a high-growth investment opportunity.
2. Defense & Aerospace: A Strategic Megatrend
India’s focus on self-reliance in defense (Atmanirbhar Bharat) and increased defense spending have made this sector one of the most promising investment opportunities. The government’s push for domestic defense production, increasing exports, and reduced reliance on imports has led to strong order inflows for Indian defense manufacturers. Companies engaged in missile systems, drones, fighter jets, warships, and defense electronics are seeing higher R&D investments and long-term contracts. With defense budgets rising and new policy reforms supporting indigenous production, this sector offers sustained growth potential for investors.
3. Financial Services & Credit Expansion
With rising credit demand, improving asset quality, and digital financial inclusion, India’s financial sector remains a key growth driver. The banking and NBFC segments are seeing strong loan growth, declining NPAs, and higher profitability, making them an attractive investment play. Additionally, PSU banks have undergone a significant turnaround, benefiting from better capital adequacy and corporate lending recovery. With an expanding middle class and growing MSME financing needs, financial services will continue to outperform, driven by higher credit penetration and digital adoption.
4. Energy Transition & Green Infrastructure
India’s push for renewable energy and carbon neutrality is accelerating growth in solar power, electric vehicles (EVs), battery storage, and green hydrogen. As global and domestic investors shift towards ESG-friendly businesses, companies engaged in clean energy infrastructure, EV supply chains, and sustainable projects will see strong growth. Government incentives further strengthen this sector’s investment appeal.
4. What are your expectations for the equity markets in 2025 across various indices?
Indian equity markets are expected to deliver a higher single digit to a lower double digit growth in 2025, driven by corporate earnings, stable macroeconomic fundamentals, and sustained domestic growth. While recent corrections have been influenced by global monetary tightening, FII outflows, and geopolitical uncertainties, these challenges are short-term in nature. Midcap and small-cap indices could see selective outperformance, particularly in sectors benefiting from PLI schemes, infrastructure spending, and rising domestic manufacturing. However, investors should remain cautious as valuation concerns and periodic volatility in smaller stocks may persist.
Despite market fluctuations, India’s long-term growth trajectory remains intact, supported by structural reforms, increasing private capex, and expanding domestic consumption. Sectoral leadership may rotate, with capital goods, financial services, and energy transition themes likely driving growth, while defensive sectors such as FMCG and healthcare could offer stability in uncertain times. While tariff uncertainties and global trade realignments may create short-term headwinds, India’s resilient economic foundation and policy-driven expansion ensure that the broader market remains a compelling long-term investment destination. Investors who focus on high-quality, fundamentally strong businesses will be best positioned to capitalize on India’s continued economic momentum in 2025.
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?
While we are witnessing a realignment of globalization rather than full-scale deglobalization, the shift towards friend-shoring and self-reliance indicates that economies are restructuring rather than outright retreating from global trade. Although excessive trade restrictions could create short-term inefficiencies, they may also accelerate domestic industrial growth, spur innovation, and boost local production capabilities. Equity markets may see periodic dislocations due to policy shifts, but over time, companies that successfully adapt to changing trade dynamics—either through localized supply chains, alternative markets, or strategic partnerships—will continue to deliver strong returns. Investors who position themselves in businesses that thrive in both global and regional markets will be best placed to navigate these structural changes effectively.
Additionally, tariffs are typically passed on to consumers, rather than being absorbed entirely by businesses. Companies with strong pricing power and brand loyalty will find ways to offset increased costs, ensuring minimal disruption to profit margins. This could lead to inflationary pressures in certain segments, but it also reinforces the importance of investing in businesses with efficient supply chain management and strong demand elasticity. From an equity market perspective, short-term volatility may arise, but long-term fundamentals remain stable. Investors who focus on resilient companies with adaptable business models—ones that can optimize costs and shift production efficiently—will be best positioned to navigate this evolving landscape.
