Daily Voice: Any disappointment in 2HFY25 corporate earnings could lead to further correction in markets, says this fund manager

Mohit Khanna is the Fund Manager at Purnartha PMS

Mohit Khanna, fund manager at Purnartha PMS, believes that disappointing corporate earnings in 2HFY25 could "trigger further correction" in the markets. "In my sense, it is a higher probability event," Khanna told Moneycontrol in an interview.

In 2025, as per the seasoned equity analyst, pure-play bottom-up stock picking will be the only way to create alpha and it is the time to get back-to-basics where revenue visibility, execution capability and cash-flow generation will trump others. "Sectors like financials, FMCG, infra, capital goods, IT & pharma present many such fundamentally strong investment thesis," said Khanna, who has more than 15 years of market experience.

What could be the biggest risks for the Indian and US equity markets in 2025?

In the near-term, disappointing corporate earnings in 2HFY25 could lead to further correction in the markets. In my sense, it is a higher probability event. However, over the course of full year 2025, the biggest risk for the Indian economy in 2025 could be stubbornly high inflation and slowdown in Government’s spending leading to slower GDP growth. While these events could lead to deeper drawdowns and slower recovery in the markets, their probability of occurrence is low.

Which sectors do you like for investment in 2025?

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Mohit Khanna

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Broad-based rally in the markets is over. Pure-play bottom-up stock picking will be the only way to create alpha in 2025, in my view. It largely means ‘back-to-basics’ where revenue visibility, execution capability and cash-flow generation will trump others. After the recent correction, we are finding multiple such fundamentally strong companies at reasonable valuations.

Sectors like Financials, FMCG, Infra, Capital goods, IT & Pharma present many such fundamentally strong investment thesis. This is where we are concentrating most of our energies while preparing for 2025. Additionally, rural recovery as a theme could also play-out well this year.

Is the technology sector a good bet for 2025? What challenges could the sector face?

Indian IT companies have come a long way in understanding and managing the H-1B visa issues. In his previous Presidency, Mr. Trump restricted labour access via non-immigrant visas. However, his recent statements suggest a much favourable outlook. We hope to get more clarity on this in the coming months.

In terms of the other aspects, interest rates, and probable tax cuts in 2025 should provide tailwinds to the sector, especially to the BFSI vertical. The growth differential between the Americas and Europe seems to be widening as Europe continues to struggle with poor demand and economic growth. This is beneficial for the companies with lower exposure to the European economies. Moreover, given that the Euro has already depreciated by ~3% against USD, the cross-currency impact looks to be a concern in the near-term.

Do you believe that, alongside quick commerce, social commerce is also an emerging theme for the coming year?

I would partially agree but investment opportunities in the Indian listed arena are somewhat limited. Social media platforms are increasingly integrating commerce features, blurring the lines between socializing and shopping. Live streaming and shopping events are gaining traction, offering immersive experiences that blend entertainment and commerce.

Social commerce provides valuable insights into consumer behaviour, preferences, and purchasing patterns, helping brands refine their marketing strategies. Spotify in the US is a great recent example of successful implementation of such strategies. It is a space where the ‘winner takes it all.’ Thus, one must be careful and thorough with their homework before making an investment decision.

At Purnartha, do you think the RBI won't be aggressive in its rate-cut cycle for 2025, especially after the US Federal Reserve's commentary in its December meeting?

Yes, we believe that the incoming rate cut cycle would be gradual and shallower than the past cycles in India. There are two primary reasons for it. Firstly, after the rate cuts during the Covid pandemic, the US Fed rate increased from 0.25% to 5.5% within 1.5 years. RBI also increased the Repo-rate from 4.0% to 6.5% in the same period. Thus, it is imperative for the Fed to have a higher quantum of rate-cuts to support the economic growth of the developed US economy.

Lastly, the inflation in India has been stickier than previously estimated and the fiscal deficit of the Government also remains higher than comfort. These factors limit the RBI’s ability to deliver any aggressive rate cut.

Have you started taking exposure to the FMCG sector, which has already taken a significant hit?

The Nifty FMCG Index is down approximately -15% from its 52-week high and -1% in the last 1 year. Nifty 500 Index is down approximately -10% from its 52-week high and +14.5% in the last 1 year. The FMCG space has been a clear laggard. We have started to increase our allocation weightage in the FMCG space. However, as highlighted before, we are very selective and follow a bottom-up selection process in identifying superior growth opportunities. We are finding companies that are either expanding their margins or are delivering solid volume growth.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.