Daily Voice: Ionic Wealth's Ankita Pathak explains why Q3FY25 earnings will be critical for markets

Ankita Pathak is the Chief Macro and Global Strategist at Ionic Wealth

"The Q3FY25 earnings season, which will start from next week onwards, will be critical both for the full year estimates and for testing the hypothesis of robust festive season and revival in the second half of the year," Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth said in an interview to Moneycontrol.

According to her, any further dent in the earnings will spook the markets and will add to market volatility.

Among sectors, with more than a decade of experience in the capital markets, she believes defensives such as Pharma, IT and FMCG coupled with financials will do better in 2025, at least in the first couple of quarters.

However, she also noted that IT has already given substantial returns and may not be attractive incrementally. A lot many sector plays will come clear after Trump’s policy formation, said Ankita who earlier was the fund manager-multi assets at Angel One Investment Managers and had been a seasoned economist.

Do you think another 10% correction from here can’t be ruled out at the beginning of 2025 before the market eventually moves towards record highs? Will it be difficult for the market to report double-digit gains in 2025?

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Ankita Pathak

Chief Macro and Global Strategist|Ionic Wealth

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The 2025 will start with multiple key events a) Trump policy formation b) the Union budget of India c) the First MPC meeting under the new governor. The event-packed months will keep the volatility high in the markets; therefore another correction from current levels can not be ruled out. Markets are still a work in progress towards reasonable to cheap valuations.

I believe from the lows, double-digit gains should not be too hard, at least in the current context. Growth has slowed down but is not worrisome. Earnings are expected to improve in the last quarter of FY25 and FY26. Lead inflation indicators such as mandi prices are easing which will give RBI more room to ease rates. There are pockets of pain and slowdown that is visible but it is unlikely that it will perpetually weigh on the domestic capital markets.

Do you see any major challenges for the market, both globally and domestically?

Markets will see a lot of policy uncertainty in 2025 which will keep equity volatility very high. Questions on tariffs and their changing the world trade order are likely to advantage some geographies and sectors at the expense of others. The broad-based rally in markets looks largely over, which means markets will disproportionately reward earnings hereon. Any growth slowdown will reflect on earnings and will keep the markets worried.

In the US, one big trend could be coming back of inflation. Fed is already gearing for a shallower rate cut cycle than previously anticipated. With inflation expectations coming back, Fed’s stance posesa  challenge to markets.

Domestically, we need a laser-sharp focus on growth. We need to deliver the India story. Growth can be a challenge for us amidst global headwinds but with the right policy mix, we may be able to deliver.

Do you think the market will closely watch Q3 earnings for any potential downward revisions in growth expectations for the full year, given that the year started with over 15% growth estimates but is likely to end with mid-single-digit growth?

Yes, Q3 earnings will be critical both for the full-year estimates and for testing the hypothesis of a robust festive season and revival in the second half of the year. Any further dent in the earnings will spook the markets and will add to market volatility. However, amidst this backdrop, markets will also reward the earnings outperformers. An earnings-based approach can be rewarding in the coming quarters.

Do you foresee a delay in the pick-up of private capex, which could extend the economic growth slowdown, even though the government is maintaining its capital expenditure?

Even government capex expenditure is happening at a pace which is lower than expected and therefore the whole capex boom hypothesis is now under question. We believe that government capex will continue to grow but the pace of growth will slow down. India’s corporate sector has deleveraged over the last 5 years, the balance sheets are now healthy and private capex is a matter of when and not if. For now, private capex has not shown signs of revival but with an easier monetary policy, it could step up hereon.

Which sectors do you think will be at the forefront of equity market performance and earnings growth in 2025?

We believe defensives such as Pharma, IT and FMCG coupled with financials will do better in 2025, at least in the first couple of quarters. However, we also note that IT has already given substantial returns and may not be attractive incrementally. A lot many sector plays will come clear after Trump’s policy formation. Overall, we maintain a cautious outlook for the first half of the year.

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.