Daily Voice: Discretionary consumption, power, data centers, defence sectors in in focus for 2HCY25, says this CIO

Piyush Mehta is the smallcase Manager and CIO and Partner at Caprize Investment Managers.

In the second half of this calendar year, "the focus remains on discretionary consumption, which comprises value retail, jewellery manufacturers, and mid-to-premium hotel chains," said Piyush Mehta of Caprize Investment Managers in an interview to Moneycontrol.

Further, according to him, the power sector also takes center stage, and data centers, too, will see sustainable growth levers due to enhanced digital infrastructure requirements.

In addition, due to Operation Sindoor – defence as a sector has taken prominence but valuations here seemed stretched so we are betting selectively, the smallcase Manager and CIO and Partner at Caprize Investment Managers said.

Do you have a strong positive view on the telecom sector?

It’s a tough question to answer. Telecom operators like Bharti Airtel have really improved their ARPUs (average revenue per user) and also the CFO (cash flow from operations) from Rs 55,000 crore to almost Rs 1 lakh crore, while other players are still struggling. Even telecom tower companies aren’t really delivering growth – Indus Towers grew at 3% CAGR over the last 3 years. So we don’t see many high growth opportunities in this sector.

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Piyush Mehta

Smallcase Manager and CIO and Partner|Caprize Investment Managers

Do you see signs of strong earnings growth ahead, considering expectations for the Q1FY26 earnings season starting next month?

Definitely. Nearly Rs 4-6 lakh crore fund raise that has happened over the past 3 years (listed and unlisted), a large of that has gone into capex. Most of it comes on stream either in 2HFY26 or FY27. So a lot of companies are at an inflection point of earnings and will look reasonable on valuations post 2 quarters as earnings spill over to FY27.

Do you expect a strong improvement in credit growth in the second half of FY26?

Yes. Loan growth moderated in 2HFY25 but due to a slew of measures by the RBI, credit growth is slowly picking up pace and large part of bad loans cycle is well known and built in. It’s about time the credit growth cycle picks up from here.

Do you believe the worst is behind for the equity markets? If so, does that imply a 15 percent return for the market by the end of 2025?

The worst is definitely behind from a macro perspective whether it’s a depreciating INR, rising bond yield, FII selling and surging oil prices. But in the short term, markets are always driven by liquidity. Short-term volatility can continue in the face of geo-political issues, liquidity pressure and earnings normalization.

On a broader level, valuations are still not reasonable, especially after the bounce we saw in these two months. Smallcap Index is trading at 37-38x Versus long term average of 20x. There are pockets where there are opportunities but overall it’s tough to find clear winners as good outlook/earning is getting priced in too fast.

So, while the benchmark indices look ok, it’s important to see how the broader markets - especially mid and small cap names perform. That said, there are certain sectors/segments/companies that are at an earnings inflection point thanks to various micro and macro factors.

Which sectors are you betting on for the second half of 2025?

The focus remains on Discretionary consumption, which comprises value retail, jewellery manufacturers, and mid-to-premium hotel chains. The power sector also takes center stage with a strong focus on transformers and transmission EPC projects. Also, niche manufacturing and Make-in-India will continue to gain advantage through government policies and domestic consumption.

Renewables, driven by a robust backward integration theme, will offer selective investment opportunities. Data centers, too, will see sustainable growth levers due to enhanced digital infrastructure requirements. In addition, due to Operation Sindoor – defence as a sector has taken prominence but valuations here seemed stretched so we are betting selectively.

What is your outlook on the staples and IT sectors?

Well staples will continue to grow at a tepid pace. No real opportunities here. Mainstay IT companies have lost momentum. However, select IT names with strong focus on AI and automation will do extremely well.

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