"The inflation data has been supportive of another rate cut. Additionally, based on the data, two rate cuts could also be on the cards," said Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, in an interview with Moneycontrol.
He further believes that after these potential rate cuts, the RBI could enter a phase of prolonged pause.
According to Naveen, while the equity market is fairly valued, it could still deliver double-digit returns from the current levels, in line with earnings growth.
Do you expect the RBI to announce its final rate cut in August before entering a prolonged pause, given the consistent decline in inflation and the current focus on supporting economic growth?
The inflation data has been supportive of another rate cut. Additionally, considering the data, even two rate cuts could be on the cards. Thereafter, the RBI could enter a phase of prolonged pause. The focus on growth will continue to remain strong, and thus the inclination toward rate cuts will continue to remain high.
Do you anticipate a stronger earnings trajectory for financial stocks, considering the RBI’s growth-oriented stance?
In the near term, the earnings growth trajectory for banking stocks will be modest, as rate cuts will mean pressure on NIMs. However, over the medium term, as growth prospects pick up, the earnings trajectory is bound to improve. This is more likely in H2 FY26.
Are valuations for the frontline indices currently in the fair value zone? If so, does that imply the market could deliver double-digit returns in the remaining months of 2025?
The market is fairly valued, which means it’s neither cheap nor expensive. Long-term returns on equity have been in the range of 12% to 14%. Thus, even though the market is fairly valued, it could still deliver double-digit returns from the current levels in line with earnings growth.
Which segments within the IT space appear most attractive for investment at this stage, given that some experts are positive on the BFSI vertical while others anticipate further downside in the entire ER&D segment?
The ER&D is an exciting space, but there are challenges marked by slowdown and valuation concerns. Broadly, the IT sector seems to have been stuck in a low-growth trajectory, especially the large-cap IT space. In this scenario, value versus growth will be important parameters. Overall, the sector will see stock-specific ideations, but the sector attractiveness seems to have meaningfully reduced.
Do you believe growth and valuations are currently unfavourable for investors in the consumer staples sector?
Growth has seen some degree of improvement from a low base, but valuations are not very attractive considering that growth has not picked up meaningfully. The sector continues to experience challenges regarding nominal growth, as competition remains high and pricing power has become somewhat elusive.
However, the prospects for improved growth have brightened, and with that improvement, valuations could look reasonable. At the current juncture, the growth versus the valuation challenges continue to persist.
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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