Daily Voice: Another 5% decline from here can't be ruled out but 10% market correction seems unlikely, says ArthAlpha's CIO

It’s hard to say for certain, but financials could potentially play a significant role in helping the market recover, depending on several factors. If financials, particularly banks and other financial institutions, can demonstrate solid earnings, strong capital positions, and effective risk management, they might boost investor sentiment and provide some stability to the market. Additionally, financials are often seen as a barometer for broader economic health. If the sector shows resilience, it could suggest that the economy is not as weak as some fear, potentially helping to turn things around.

However, it also depends on broader factors like interest rates, inflation, and geopolitical events. If those remain challenging, even strong financials might not be enough to reverse the market’s direction. Ultimately, it will depend on the macroeconomic conditions and how well the financial sector adapts to them.

Do you think most of the market correction is over, or is there still a possibility of another 5-10 percent correction from here?

While I can't rule out another 5% decline from here, a 10% correction seems unlikely. A sideways market next quarter is highly probable. Keep in mind that a sideways market doesn't mean sideways stocks; there are excellent stock-specific opportunities available, both from a short- and medium-term perspective.

1) Economic Indicators: If economic data (like GDP growth, unemployment rates, inflation, or consumer sentiment) signals slowing growth or worsening conditions, markets could face further corrections.
2) Interest Rates: Central banks (like the Federal Reserve) have a significant impact on market sentiment. If they raise interest rates to combat inflation, it could trigger additional pullbacks in the market, especially in higher-risk assets.
3) Corporate Earnings: If corporate earnings miss expectations or show signs of slowing growth, that could be a catalyst for another market correction.
4) Geopolitical Events: Unexpected events like conflicts, pandemics, or major policy changes can shake investor confidence and lead to short-term corrections.
5) Market Sentiment and Technicals: The market’s technical levels, such as key support and resistance levels, and investor sentiment, can also give hints. If the market has already bounced significantly from a previous dip, it may be more vulnerable to another correction if it struggles to hold those gains.

In short, while many of the recent corrections may be priced in, there is still the potential for volatility, and a 5-10% pullback is always possible, depending on economic and geopolitical factors. Diversifying your investments and staying informed on these variables can help mitigate risks in such an uncertain environment.

Are you still concerned about an earnings slowdown in India?

It depends on the sector. While some industries, like IT services and exports, have seen pressure due to global macroeconomic factors, domestic consumption and infrastructure spending have remained strong. Recent earnings trends suggest that banking, auto, and capital goods have performed well, whereas FMCG and discretionary consumption have faced some slowdown due to inflation and rural demand constraints.

Which sectors do you think will create the multibaggers going forward?

The next wave of multi-baggers in India is likely to come from sectors benefiting from structural tailwinds, policy support, and long-term demand trends. Here are a few promising ones:

1) Capital Goods & Manufacturing – India’s push for domestic manufacturing (PLI schemes, Make in India) and infrastructure spending should create strong growth opportunities. Companies in railways, defense, and industrial automation could see sustained upside.
2) Electric Vehicles (EVs) & Clean Energy – With government incentives and rising EV adoption, battery tech, charging infrastructure, and renewable energy (solar, wind, green hydrogen) players are set for exponential growth. Companies financing EV adoption, like Pointo, also stand to benefit.
3) Pharma & Specialty Chemicals – India is solidifying its position as a global supplier of APIs and specialty chemicals, benefiting from China+1 trends. Niche pharma (biosimilars, CRAMS) and chemical players serving global supply chains could be multi-bagger bets.
4) Tech & AI-driven Businesses – While traditional IT is under pressure, deep-tech companies leveraging AI/ML for automation, cybersecurity, and SaaS platforms could be major beneficiaries. Digital transformation plays, especially in fintech and B2B SaaS, have strong long-term potential.
5) Consumer & Retail (Premiumization Theme) – Despite near-term consumption pressures, the shift toward premium products (luxury brands, QSRs, aspirational FMCG) remains a strong structural trend. Companies catering to affluent consumers should do well.
6) Logistics & E-commerce Infrastructure – As e-commerce penetration grows, platforms like RapidShyp, which streamline shipping for online sellers, can capitalize onthe  demand for efficient supply chain solutions. Warehousing, last-mile delivery, and AI-driven logistics firms will also benefit.

Have you started taking exposure to the consumption and IT sectors?

If you’re asking whether it’s the right time to start accumulating IT and consumption stocks, it depends on your investment horizon.

IT Sector: The worst of the earnings slowdown seems priced in, and large-cap IT stocks have rebounded from their lows. With global interest rates expected to stabilize and AI-driven growth opportunities emerging, selective accumulation in mid- and large-cap IT names could make sense for a long-term portfolio. However, near-term demand remains sluggish, so staggered buying might be prudent.

Consumption Sector: Rural demand has been weak, but signs of recovery are emerging. Premiumization trends continue to drive growth in discretionary spending (QSRs, luxury FMCG). If inflation remains under control and rural incomes improve, consumption stocks—especially in FMCG, auto, and retail—could regain momentum. The valuations of some consumption plays are still high, so picking undervalued or underappreciated names would be key.

Do you think the RBI will announce a second policy rate cut in April, considering the economic data points?

As of now, a rate cut by the RBI in April 2025 seems unlikely, given the current economic data points. Here’s why:
1) Inflation risks still exist: While CPI inflation has moderated, food inflation remains a concern, especially with global commodity price volatility and climate-related disruptions. The RBI will likely wait for more clarity before cutting rates.
2) US Fed’s stance matters: The Fed is expected to cut rates in mid-2025, but if US inflation remains sticky, it could delay rate cuts. The RBI may prefer to wait rather than risk capital outflows and currency depreciation.
3) Strong economic growth: India’s GDP growth remains robust, supported by government spending and strong domestic demand. A rate cut isn’t urgent unless growth shows signs of weakening.
4) RBI’s cautious approach: The central bank has been conservative with policy moves. A first rate cut could come later in 2025, but two cuts in quick succession seem unlikely unless inflation falls sharply.

If the RBI surprises with a dovish stance in April, it would likely be signaling confidence in inflation being under control.

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