Krishnan VR of Marcellus expects the Reserve Bank of India (RBI) to revise its full-year growth forecast downwards given that GDP grew by ~6 percent in first half of the current financial year.
For the full year, the RBI has projected growth of over 7 percent. This implies over 8 percent GDP growth in 2HFY25 which looks less probable as of now, said the Chief of quantitative research at Marcellus, in an interview to Moneycontrol.
In the Q2FY25 results season, markets have punished earnings disappointments disproportionally. This can repeat over next few quarters if consumption slowdown is prolonged and risks in consumer lending fructify, leading to earnings downgrades especially given high starting valuations in pockets of the market, said Krishnan with more than 10 years of experience in both equity and fixed income research.
Are domestic flows necessary but no longer sufficient to support the equity market, which has been significantly impacted by foreign outflows since October?
Domestic flows cushioned the markets from a sharper sell-off due to record FPI outflows in October. MF inflows have continued to stay healthy, and it seems retail is trying to buy in the corrections. However, if market returns are tepid going forward due to FPI outflows and a weakening macro, then how long domestic flow can sustain the market is a moot question.
Is it time to be overweight on consumer discretionary stocks and underweight on private banks?
In my opinion it is better to take company specific approach here instead of broad -brush sector call. Within consumer sector you have heterogeneous set of businesses with different exposures to mass consumption vs luxury, urban vs rural etc. Maybe as a theme, one can be cautious on mass consumption given India’s inability to create jobs at scale and stretched household balance sheets.
Do you think the RBI will use other tools to release liquidity instead of opting for interest rate cuts on December 6?
Currently the money market liquidity seems to be in balance. Perhaps other tools could be considered towards the end of the fiscal year if capital outflows continue at current pace along with associated to FX interventions by RBI. I think the monetary policy committee will have complex set of choices to work through in the upcoming meeting, given the elevated food inflation and rising US bond yields.
Do you expect the RBI to revise its full-year growth forecast downwards on December 6?
Looks likely given that GDP grew by ~6 percent in first half of the year. And for the full year, the RBI has projected growth of over 7 percent. This implies over 8 percent GDP growth in 2HFY25 which looks less probable as of now.
Do you see more tailwinds than headwinds for equity markets in 2025?
More headwinds if the expectation is that we are headed into a multi-quarter cyclical slowdown. Given the exposure to domestic economy, the slowdown should reflect in corporate earnings as well. If you look at Q2 results season, markets have punished earnings disappointments disproportionally. This can repeat over next few quarters if consumption slowdown is prolonged and risks in consumer lending fructify, leading to earnings downgrades especially given high starting valuations in pockets of the market.
Which sectors should investors bet on for 2025?
I prefer a mildly contrarian approach over 3-5 years, hence would suggest sectors with good fundamentals but which have been out of favour compared to broader market over last few years. Looking at broad valuations there are pockets of opportunities within large private banks, where you can find well managed companies with strong fundamentals. Nifty Private Bank index has lagged its PSU counterpart and valuations of most large private banks have derated over last 5 years. Quality names within IT and pharma could also outperform if the Rupee weakens further. Our investing style remains sector and theme agnostic though.
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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