Daily Voice: This CIO recommends 5 promising micro sectors for a strong portfolio

Jaspreet Singh Arora is the CIO at Equentis Wealth Advisory Services

"BFSI, consumer discretionary, pharmaceuticals, commodities, and power (especially renewable energy and infrastructure) are promising micro sectors to consider, while building a portfolio with couple of years' perspective," said Jaspreet Singh Arora, the CIO at Equentis Wealth Advisory Services in an interview to Moneycontrol.

On the contrarian bets for 2025, he believes sectors like metals, cement, chemicals, and NBFCs, which have underperformed in recent years, could potentially outperform due to their current low valuations and the possibility of a market correction or rotation into undervalued sectors.

Further, according to Jaspreet who has over 18 years of experience in the Indian capital markets, equity markets are less concerned about US tariffs.

Do you think the current rally may fizzle out if Q4 FY25 earnings disappoint?

Depends. It is not just earnings that are driving the current rally. Several factors, like the improved outlook for the fourth quarter of FY2025, will play a role, but it is one piece of the jigsaw.

Declining US dollar index, may boost emerging market equities and commodities, and a softening in crude oil prices could ease inflationary pressures benefiting the logistics and manufacturing sectors.

Growing expectations of future interest rate cuts by central banks will likely create a more favourable environment for borrowing and investment, stimulating economic growth and corporate earnings.

The substantial drop in stock prices before this rally has resulted in attractive valuations for many stocks, attracting investors seeking potential bargains and opportunities for future gains. These factors have created an environment that drives the current market rally.

Where would you bet if you were building a portfolio with a couple of years' perspective right now?

If we were building a portfolio with a couple of years’ perspective, I’d suggest prioritizing companies with strong financials and high-growth potential. Key factors include high earnings visibility (over 20% growth), steady cash flows, strong return ratios (ROE, ROA), and competent management.

BFSI, consumer discretionary, pharmaceuticals, commodities, and power (especially renewable energy and infrastructure) are promising micro sectors to consider. However, investing always involves risk, so thorough research and financial advice are crucial before making any decisions.

Are Indian markets concerned about US tariffs at the moment?

Indian markets are less concerned about US tariffs. Over the past six months, the primary concerns have been a decline in earnings growth, a depreciating rupee, high valuations, and consistent selling by foreign institutional investors (FIIs).

These internal factors have significantly impacted the market sentiment more than the potential external threat of US tariffs. While the US tariffs may negatively affect specific sectors or industries, the market sentiment is focused on domestic economic conditions and the performance of Indian companies.

Do you foresee a slowdown in the world’s largest economy in the coming quarters?

Yes. Several sources, including the International Monetary Fund, World Bank, and CNBC, have indicated a drop in global economic growth, with advanced economies facing a particularly pronounced slowdown.

Geopolitical tensions, high interest rates, persistent inflation, trade disruptions caused by the Trump tariff wars, and the ongoing labour challenges are several factors that could contribute to this slowdown.

Moreover, the Federal Reserve has downgraded the growth forecast for the US economy in 2025 from 2.1% to 1.7%.

Do you expect only two rate cuts by the Fed for the rest of 2025? What do you make of the latest Fed commentary?

Yes, we foresee two rate cuts for the rest of 2025. However, there could be a slight chance of a third rate cut. The persistent inflation in the US may surge after April due to higher import tariffs, warranting an additional rate cut, further complicating the Fed's efforts to manage economic growth and price stability.

What is your contrarian bet for 2025?

Mostly sectors that have underperformed in recent years will be the go-to. Some of these sectors are metals, cement, chemicals, and NBFCs. The belief is that these sectors could potentially outperform due to their current low valuations and the possibility of a market correction or rotation into undervalued sectors.