Krishna Sanghavi of Mahindra Manulife expects mid-single digit earnings growth in Q3, similar to that in Q2FY25. Further, for the December quarter, "we will be monitoring whether there is a shift towards volume-led recovery," said the CIO of Equity in an interview to Moneycontrol.
After the recent market correction, he believes large-cap stocks appear attractive from a market capitalization perspective, though select small and mid-caps also offer value.
For the medium to long term, sectors such as manufacturing, capex, power, and financials look promising due to their growth potential and alignment with key economic trends, said Krishna Sanghavi with over 27 years of experience of which around 14 years have been in the mutual fund industry and around 8 years in life insurance industry.
Do you see more tailwinds than headwinds for the equity market and economic growth in 2025?
For equity markets, the key drivers—earnings growth, sentiments, flows, and valuations—often act as a mix of tailwinds and headwinds. In CY2024, domestic flows have been a significant tailwind, particularly for the mid and small-cap segments. However, valuation concerns in these categories, especially compared to large caps, highlight the need for close monitoring. The balance between these factors will determine the market trajectory and economic growth in 2025.
CY2025 appears to be evenly poised, with domestic flows acting as a tailwind and valuations presenting a headwind. A higher-than-expected earnings growth could help alleviate valuation concerns, while shifts in global sentiment may impact domestic flows. Additionally, FPI flows remain a critical factor, as highlighted by the trends observed in the current quarter.
Do you expect the repo rate cut to begin in the February policy meeting? How many rate cuts are possible in 2025, and what are the challenges for the new RBI governor?
We anticipate monetary easing, including potential repo rate cuts, by the RBI in CY2025, though predicting the exact timing remains challenging. Policy decisions are influenced by multiple variables such as macroeconomic indicators (inflation, growth, fiscal deficit) and actions by other central banks globally. These variables are subject to changes at a short frequency, making it difficult to forecast the exact timing of monetary policy. Balancing the domestic growth and inflation dynamics amid evolving global economic conditions could be a key challenge for RBI.
Are you cautious about auto ancillaries?
Auto ancillaries are somewhat tied to both new auto sales and the replacement of components. FYTD 25 has been relatively weak for new auto sales, with only a few players performing well, which has impacted auto ancillaries as well. However, auto ancillary companies focused on product diversification or catering to the electric vehicle (EV) segment could potentially outperform as they have potential to capture increased market share
Where would you like to bet your money in 2025?
After the recent market correction, large-cap stocks appear attractive from a market capitalization perspective, though select small and mid-caps also offer value. Sector-wise, we are seeing divergence within companies in the same sector, driven by stock-specific catalysts influencing earnings and news flow. In the near term, we would prefer a stock-specific approach. For the medium to long term, sectors such as manufacturing, capex, power, and financials look promising due to their growth potential and alignment with key economic trends.
What do you expect from the December quarter earnings starting next month?
We expect mid-single digit earnings growth in Q3, similar to that in Q2FY25. There is likely to be divergence across sectors, with certain companies outperforming their peers due to stock-specific catalysts. Over the past 12 months, corporate India has seen margin-led growth. For the December quarter, we will be monitoring whether there is a shift towards volume-led recovery.
What do you make of the Fed's commentary in the December meeting? Do you see a pause in interest rate cuts for a couple of meetings?
The US Federal Reserve has 100 basis points of rate cuts in the last three months, in response to a benign inflation environment. However, inflation in absolute terms continues to remain above the Fed's comfort zone of 2%, while US GDP growth remains steady. As a result, the Fed may adopt a more cautious approach before making further rate cuts. The Fed has signaled a more gradual rate cut path for 2025 than initially projected, with policymakers now anticipating two rate cuts in 2025, down from the four cuts they had forecast in September.
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.
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