Undoubtedly, there are many dark clouds in 2025 that can impact economic growth, Nilesh Shah of Kotak Mahindra AMC said in an interview to Moneycontrol.
According to him, global factors like heightened geopolitical tensions, the second term of President Trump, and Indo-China relations will continue to impact growth.
He expects India to be the fastest growing major economy clocking mid to high single digit GDP growth for many years to come. However, "without the end of inspector Raj and crucial reforms on land, labour, farm and judicial we will not be able to grow in double digits," said the Managing Director at Kotak Mahindra AMC, who has more than 28 years of experience in capital markets and fund management.
Many experts see the interest rate cut cycle starting in February or April 2025, but he expects the RBI to cut rates in 2HCY25. "This rate-cut cycle is likely to be very shallow," said Nilesh Shah who recommends overweighting Gold as an asset class from a medium-term point of view.
Which two sectors have you identified for 2025 must be part of a portfolio?
We are watching quality over momentum, reasonable valuation over expensive valuation, and high-floating stock over low-floating stock companies.
On a bottom-up basis, amongst private banks (which have good credit culture and aren’t over-exposed to microfinance/ unsecured loans), IT (companies which are leveraging AI and ML to deliver faster, cheaper, better solutions to clients), Pharma (across the board on valuations), Telecom (on expectations of price revision which adds substantially to bottom line), Consumer staples (rural focussed), and Cement (consolidation story) sectors, one will find the market outperformers.
Do you expect gold to deliver similar returns in 2025 as in 2024?
Thank you for believing that I can predict the future. Unfortunately, I don’t . We believe gold will do well as central banks worldwide have become like Indians: They keep buying gold and never sell it. A drop in US interest rates also changes the orbit of gold prices. I recommend overweighting Gold as an asset class from a medium-term point of view.
Will inflation pose a significant risk for the Federal Reserve in 2025?
US inflation will depend upon multiple factors.
If the DOGE (Department of Government Efficiency) does take out $2 trillion of government expenses, inflation will be below market expectations. Any sharp stock market correction will erode household wealth and impact consumption, lowering inflationary pressure.
On the other hand, if political pressure forces the US Federal Reserve to cut rates more / faster and fiscal policies remain expansionary, with tax cuts putting more money in the pockets of corporations and individuals, inflation will remain elevated. It will be fair to assume that inflation will remain elevated in the US as fiscal policy will be stimulative and monetary policy will be accommodative.
Considering the Federal Reserve's outlook and the global environment, do you see the RBI reducing the repo rate by only 50 bps in 2025?
We expect the RBI to be data-driven. While there is a demand for rate cuts, the RBI will weigh all the factors, including US Fed rate cuts, inflation, rupees, and growth momentum. We expect the RBI to cut rates in 2HCY25. This rate-cut cycle is likely to be very shallow.
Do you have a strong overweight rating on BFSI?
We remain overweight in the BFSI sector except for entities heavily exposed to microfinance and unsecured lending. Banks valuation look attractive. Deposit and credit growth will likely be in the low double-digits, and NPAs are expected to remain stable. Margins will come down, but that seems to be priced in. FPI selling, which has been one of the reasons for the valuation derating, appears to come to an end.
Do you think 2025 will be a challenging year for the equity market and economic growth?
Undoubtedly, there are many dark clouds on the horizon. Global factors like heightened geopolitical tensions, the second term of President Trump, and Indo-China relations will continue to impact growth. Local challenges stem from a lack of land, labour, farm, and judicial reforms, which can affect our medium-term growth trajectory.
We expect India to be the fastest growing major economy clocking mid to high single digit GDP growth for many years to come. However, without the end of inspector Raj and crucial reforms on land, labour, farm and judicial we will not be able to grow in double digits.
Do you expect any game-changing announcements from the government in the upcoming Union Budget?
We pray for a budget that manages fiscal prudence and enhances capital spending. (like last time)
Some path-breaking ideas could be related to the absorption of railway passenger fare subsidies (away from commercial cargo freight rates) and agriculture power subsidies (away from Industrial power cost) in the general Budget to make Indian manufacturing competitive:
-> a scheme to monetise gold lying in the Tijori of Indians whereby the government gets its shares of taxes and releases domestic capital for investment
-> Set up an investment office like Temasek to manage PSUs and improve not only return on equity but also make investments for the future. For example, the focus on infrastructure focuses on futuristic investments. Invest in Robotics, artificial intelligence, machine learning, cyber security, nuclear energy, space research, etc. Create public-private partnerships to commercialise this research. Invest in creating more Maruti Udyog Limited equivalent companies.
-> End Inspector Raj by scrapping thousands of laws that restrict our entrepreneurs and create an excessive burden of rules and regulations. Punish the guilty, but don’t put extra onus on entrepreneurs.
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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