Harshad Patil of TATA AIA Life Insurance expects 2025 to see a robust economic recovery on the back of increased government capex spending and a rural recovery on the back of strong winter crop prospects.
He is of the view that manufacturing, both domestic and exports, is expected to remain strong led by government incentives and the China plus One theme.
According to him, the market perceived the recent 25 bps cut in policy rates by US Federal Reserve as a hawkish rate cut. From here on, "we expect the Fed to be firmly data-dependent and nimble enough to act in response to the policy action from the new US administration," said the Executive Vice President and Chief Investments Officer who has more than 20 years of experience in the fund management, research and dealing functions.
Do you expect the market to face less headwinds and more tailwinds that can drive the 10-15% returns in 2025?
Indian markets have delivered stellar returns in each of the past 2 years and have been one of the highest returns-generating markets. Strong domestic flows have been cushioning the market from relentless FII outflows in October and November to the tune of around $13 billion, limiting the market correction to around 7%. We expect some mean reversion in 2025 with relatively lower returns as compared to previous years. However, we remain constructive on Indian equities in the medium to long term.
On the macro front, after a period of impressive GDP growth post covid, India’s recent data releases indicate mixed signals. We believe growth is likely to revive in the second half of FY25 led by increased government spending and improvement in rural demand.
Which investment strategy according to you will play out in a volatile market situation?
Market rallies over the last couple of years have been quite broad-based and momentum strategies have rewarded investors with sizable returns. As we navigate through a volatile environment led by domestic as well as global factors, short-term fluctuations may test investor confidence. We believe that adding Quality as a factor to our quant strategy would help mitigate volatility. Quality companies have relatively stronger balance sheets which increases their financial stability and makes them less vulnerable to economic downturns. By investing in quality companies, investors can achieve more predictable returns and reduce the risk of significant losses.
What do you expect from the US Federal Reserve for 2025 after reading the last commentary of 2024?
In the December FOMC meeting, the US Federal Reserve (Fed) nudged the policy rates down by 25bps, which the market perceived as a hawkish rate cut. The US Fed has projected a moderation in its rate cut cycle in CY 2025 compared to its earlier projections as US growth has held up well and US inflation is expected to soften less than earlier estimates. That said, we expect the Fed to be firmly data-dependent and nimble enough to act in response to the policy action from the new US administration.
Do you think 2025 is going to be an earnings recovery year for India? Which are the themes to focus on in the new year?
We believe that Government spending will pick up pace in H2 FY 25. We are of the view that manufacturing, both domestic and exports, is expected to remain strong led by government incentives and the China plus One theme. IT services exports led by the expected improvement in spending in the US would continue to perform in FY25. Also, banks may see some improvement as the liquidity in the system becomes less tight post-RBI CRR cut.
We expect CY 2025 to see a robust economic recovery on the back of increased government capex spending and a rural recovery on the back of strong winter crop prospects.
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