Anil Rego of Right Horizons anticipates the positive earnings trend in BFSI (banking, financial services, and insurance) to persist. "The Q2FY25 corporate earnings performance was subdued overall, but excluding the commodities, earnings growth aligned with expectations. The growth was primarily fueled by BFSI," said the fund manager in an interview to Moneycontrol.
After recent market correction, he sees reasonable valuations in largecaps and overvaluation in the broader markets.
He does not expect the RBI to cut policy rates in December meeting. "We expect RBI to cut interest rates from the last quarter of FY25," said the Founder of Right Horizons, who is a seasoned investor with over three decades of experience.
Which sectors are likely to see high earnings visibility in 2025?
The Q2FY25 corporate earnings performance was subdued overall, but excluding the commodities, earnings growth aligned with expectations. The growth was primarily fueled by BFSI, with technology, healthcare, utilities, and capital goods also making notable contributions. On the other hand, global cyclicals like oil & gas, as well as cement, chemicals, and consumer sectors, weighed down earnings growth. We anticipate the positive earnings trend in BFSI to persist.
Is it the right time to have exposure to textile exporters?
India's textile industry is projected to reach USD 350 billion by 2030, reinforcing its position as a global leader in textile exports, spanning from traditional handwoven fabrics to modern mass-produced materials. The sector benefits significantly from government support through programs like the Technology Upgradation Fund Scheme and the PLI scheme.
Additionally, the industry is well-equipped to leverage the global trend toward sustainability, with manufacturers increasingly embracing eco-friendly practices, sustainable sourcing, and ethical production. To further boost the sector, the government has allocated funds to revitalize the industry.
Has the recent dual correction (in both price and time) made market valuations more attractive for foreign portfolio investors?
After reaching the milestone of 26,277 in September 2024, the Nifty has experienced a correction driven by geopolitical tensions in the Middle East, weak Q2FY25 corporate performance, and record-high monthly selling by FIIs, triggered by capital outflows following China's monetary stimulus. Corporate earnings, which had seen robust double-digit growth for four consecutive years, are moderating due to headwinds in the commodities. We see reasonable valuations in largecaps and overvaluation in the broader markets.
Do you foresee significant disruption in the retail space?
The retail space is witnessing disruption, driven by several transformative trends: E-commerce Expansion, Omnichannel Retailing & Consumer Preferences. The demand environment in Q2 faced challenges due to unfavourable weather conditions, such as floods and heavy rains in some regions, along with persistent inflation that weighed on urban demand. Volume growth for most companies was disappointing, following a modest improvement in Q1FY25.
Do you think the RBI will refrain from starting a rate cut cycle for the rest of FY25?
Several major global central banks have started a cycle of cutting interest rates limiting pressure on rupee. While GDP growth moderated in Q1 and recent high-frequency indicators point to a slight slowdown in momentum, the overall growth remains robust. Real GDP growth is projected at 7.2 percent for FY25. RBI has maintained its status quo on policy interest rates and has changed the stance to 'neutral' from 'withdrawal of accommodation'. We expect RBI to cut interest rates from the last quarter of FY25.
Do you expect a pick-up in government spending and a recovery in the rural segment in the second half of FY25?
Capital expenditure in FY25 had a slow start due to elections. Rural demand and government expenditure are expected to be pivotal in driving India's economic growth during the second half of FY25. The Centre has reached 37 percent of its budgeted capital expenditure target in H1, while 20 major states, collectively, have achieved only 28 percent of their budgeted target. We expect demand in H2FY25 will be greater than H1FY25 due to pent up of construction activities, increased government spending.
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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