"2025 is projected to be a year for stock pickers, with investors focusing on specific opportunities rather than broad asset class performance," Manish Bhandari, Founder, CEO & Portfolio Manager of Vallum Capital Advisors said in an interview to Moneycontrol.
Additionally, according to him, the recent strengthening of the INR compared to BRICS and other developed currencies highlights India's solid economic foundation, with no major disasters anticipated.
Among themes, he belives premium products and services sector is thriving, while sectors like electronic manufacturing and aerospace maintenance (MRO) are gaining traction, supported by government initiatives. "Specialized engineering segments are expected to grow, driven by technological advancements. The IT service sector continues to thrive, with Global Capability Centres generating millions of new jobs annually," said Manish Bhandari with two-and-a-half decades of experience.
Do you foresee the possibility of a significant correction in the equity market in 2025?
Indian equities are unlikely to experience corrections exceeding 20%, which are considered "Black Swan" events. In the last 25 years, such large drawdowns have occurred only five times. A significant correction would typically require a "tail risk" event. Currently, the depreciation of the Chinese yuan amid US trade disputes is the only potential tail risk identified, but its likelihood remains uncertain.
Investors should be aware that the top-performing sectors or asset classes change in every market cycle. This is a predictable outcome in investing.
In 2024, all major asset classes yielded positive returns. Historically, such synchronized performance often precedes muted returns in the subsequent year. This suggests that market conditions may be less favourable for broad asset classes in the near future.
Despite strong macroeconomic fundamentals in India, global equity markets may experience a shift in leadership due to evolving macroeconomic conditions, especially following worldwide election cycles.
The continued dominance of the US equity market, particularly the S&P 500, is seen as a potential risk to broader equity markets, including emerging markets like India.
While broad market returns may slow, specific sectors or themes within the market could deliver significant returns. This points to opportunities in niche areas despite an overall subdued performance.
In essence, Indian equities are expected to remain resilient, but global equity markets might witness a leadership transition. 2025 is projected to be a year for stock pickers, with investors focusing on specific opportunities rather than broad asset class performance. Additionally, the recent strengthening of the INR compared to BRICS and other developed currencies highlights India's solid economic foundation, with no major disasters anticipated.
Are you concerned about earnings and economic growth in 2025?
India’s promising long-term economic outlook is driven by multiple factors:
India’s economic growth: India is well-positioned for robust growth, with its manufacturing, services, and consumption sectors playing a pivotal role. Favourable policy measures from the Modi government are expected to continue supporting this trajectory.
India’s growth among major economies: India is projected to deliver top-quartile economic growth among major investible economies, making it an attractive long-term investment destination.
Muted earnings due to government capex slowdown: Earnings across sectors have been impacted by a slowdown in government capital expenditure (capex), with only 40% of budgeted capex spent in the first half of FY25. Post-election, an acceleration in public capex and a revival of private capex are expected.
Domestic earnings driver: Despite subdued global demand, a rebound in domestic capex is anticipated to drive earnings growth in India, particularly in 2025.
Impact of US trade policies: US trade policies under the Trump administration could influence global business dynamics. Taxation and manufacturing policies will have implications for equity markets worldwide.
India’s strong fundamentals, bolstered by favourable policies and domestic investment recovery, position it as a leader in global growth despite global uncertainties. Long-term investors are advised to focus on domestic growth opportunities in 2025.
Which sectors are likely to perform strongly in 2025?
Premium products and services: This sector is thriving. Higher-end goods and services, such as hotels, remain strong, indicating sustained demand despite economic uncertainties.
Emerging manufacturing themes: Sectors like electronic manufacturing and aerospace maintenance (MRO) are gaining traction, supported by government initiatives.
Small engineering niches: Specialized engineering segments are expected to grow, driven by technological advancements.
Service sector growth: The IT service sector continues to thrive, with Global Capability Centres generating millions of new jobs annually.
Micro Themes
Consolidation: Industries like auto dealerships and CNG gas stations are undergoing consolidation, offering investment opportunities.
Tech Media and CDMO: Companies focused on innovative, globally promising products are likely to benefit.
US Re-Industrialization: India’s IT and engineering sectors could gain from the US’s re-industrialization trend, enhancing exports.
Do you expect major announcements in the upcoming Union Budget to boost growth?
The infrastructure spending target is expected to remain at Rs 11 lakh crore, indicating sustained investment in public capex.
The Budget 2025 may include tax realignment for the auto sector and a recycling policy to promote sustainability and efficiency. Subventions for phasing out old vehicles could stimulate the auto cycle, support the recycling industry, and create jobs in light engineering.
Avoiding increased taxes on capital markets is crucial to maintaining a favourable investment environment.
Do you anticipate a major impact of any policy changes by the Trump administration on India and global growth?
Strong ties with the US and the presence of Indian advisors in Trump’s council could mitigate adverse effects.
Domestic healthcare and CDMO sectors are set to benefit from government support and rising demand. The Production Linked Incentive (PLI) scheme will drive manufacturing growth.
US corporate savings from tax cuts are expected to fuel discretionary spending, benefiting Indian IT services.
Which sectors are expected to show subdued performance in 2025?
Overvalued sectors are likely to see muted performance as markets adjust to realistic projections.
Execution challenges may hinder sustained growth in capital goods, while PSU companies might face limited growth due to shifting government focus.
Regulatory changes under the Trump administration could pose risks to clean energy companies.
In conclusion, while the global landscape presents challenges, India’s strong fundamentals and targeted sectoral opportunities offer a promising outlook for 2025.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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