Moneycontrol Pro Panorama | Time to be cautiously contrarian?

It may be time to play the game of a cautiously contrarian investor, instead of staying out of markets altogether.

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 
The odds are rising against equity market optimism. From geopolitical tensions, interest rates concerns and the recent human metapneumovirus (HMPV) scares at a global level to local ones such as growth pangs, widening consumption slowdown and corporate earnings moderation, the uncertainties are painting a gloomy picture of what lies ahead.

Indeed, most of these variables are known to investors. That is why India’s benchmark equity index Nifty 50 is down about 10 percent from the peak it scaled in end-September. Even the Nifty mid-cap and small-cap indices have shed some gains and are down 7 percent and 5 percent, respectively. News bytes of record selling by foreign portfolio investors (FPI) are hogging media and social media headlines, adding to the negative mood in financial markets.

However, some near-term events could give investors valuable cues on how things could unfold in 2025. Globally, President-elect Donald Trump’s assuming office soon will bring to light his stance on trade relations with various countries, tariffs, manufacturing policies in line with the MAGA (Make America Great Again) mission and on geopolitical equations and ongoing wars. While the European economy is not out of the woods, macroeconomists reckon that US consumption, while comfortable, is not enough to lift global demand and trade. On another note, China’s policies have failed to lift its economy and demand remains feeble. All of these could weigh on global economic growth and on exports from emerging markets, including India.

Cut to the domestic economy, the overarching factor that's dampening market mood is that corporate earnings growth will be subdued, albeit a mixed bag. If you missed it, read Monday’s MCPro Panorama that states why Q3 FY2025 earnings could be a roller-coaster ride.

Cues on the extent of government support to boost growth could come from the Union Budget 2025 that is round the corner (February 1). From a year-on-year (yoy) decline in cumulative public spend until November, will spends improve in FY2025-26? A report by Nuvama Research states that the Centre’s abilities could be constrained by “slower households”. Slowing demand and weakening of demand at the upper arm of the K-shaped demand phenomenon could thwart private sector capex too. This Chart of the Day throws light on segments of the economy that are contributing to growth in FY2024-25.

A spanner in the works is also the rupee's depreciation against the US dollar. This could fuel the country’s fiscal deficit while driving further capital outflows.

In all this, the silver lining is the time correction in equity markets and softening of valuations (One-year forward valuation is down from 22 times in end-September to about 19 times now). Part of the sell-off in equities is attributed to tighter norms in the futures and options market that has sucked out liquidity. Several leading research houses and banks’ investment and broking arms, therefore,  have cut their rating on Indian equities after tempering earnings estimates for FY2025. Cyclicality in some sectors and elevated valuations are being cited as reasons.

In the weeks ahead, post-earnings management commentary will determine if there would be further earnings downgrades and de-rating of valuations.

The question then is if this is the right time to play contrarian and buy into equities? Or is it better to err on the side of caution? Given the time correction and mixed bag performance in the listed universe, it may be time to play the game of a cautiously contrarian investor, instead of staying out of markets altogether. 

Investing insights from our research team

What does the fall in F&O volume after regulatory measures mean for BSE?

Axis Bank – Can the stock reverse underperformance?

MC Pro New Year Portfolio: 25 stocks to capitalise on the opportunities in 2025

Sirca Paints: Margins squeezed by rising competition

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Chart of the Day: Why is manufacturing's share in total GVA in FY25 same as in FY07?

Personal Finance | You cannot make money without a long-term mindset

Focus on new products at pharma companies as generic Revlimid opportunity draws to a close

India's family offices are transforming domestic private markets

Private sector stakes claim to Moon’s airwaves (republished from the FT)

Union Budget 2025: Key expectations for GIFT IFSC growth

Improving cancer care in India - challenges and path forward

NVIDIA CES 2025: Transforming AI, gaming, robotics, and more

Markets

Do market corrections trigger fear among retail investors? SIP data shows otherwise

Tech and Startups

Unexpected, hard to digest: Meta’s shift to community notes leaves Indian fact-checkers in limbo

Technical Picks: MARICO, ITC, RHIM, NIFTYBEES.

Vatsala Kamat
Moneycontrol Pro