Kotak Mutual Fund's Nilesh Shah believes 2025 will a year of stock picking and sector rotation, and hopes that foreign investors will return to equities after recent outflows, underlining India's long-term growth potential.
"Despite the FPI selling seen in October-November, markets have barely moved, are only down 8% from the top," said Kotak AMC's Nilesh Shah as he shared his outlook for the next year, adding that foreign buying in December has been promising. He pointed out that the India selling was not to buying Chinese equities as China ETFs too saw an outflow during the same period. Despite a strong 30% rally from the bottom of the year, Chinese stocks are still at levels of 2007, said Nilesh Shah, adding that Indian earnings have delivered far superior returns compared to China in recent years.
"China's EPS growth for a decade has been barely 10% in renminbi terms, while Nifty 50's EPS growth has delivered 166% returns in Rupee terms in last ten years," Nilesh Shah said.
India will have to navigate a number of unknowns at the global front, as President-elect Donald Trump takes charge in January, with an America First agenda, Nilesh Shah added. How the US Fed decides to move on interest rates in 2025 will be a key factor at play, keeping in mind the potential impact of likely tariffs that Trump may invoke. "Past tariffs have hurt US corporate profitability, and it remains to seen if it will be different this time," said Nilesh Shah.
Trump 2.0 administration will likely try to ensure that the stock market boom in US equities continues, as it will high stock prices will have a wealth effect to ensure consumption remains robust, said Nilesh Shah. "There is far more optimism about the US market among US investors, but consensus can go wrong," he added. For emerging markets too, the US fund flow will be important to support the equity rally.
Domestically, the anticipated capex push by Centre during H2FY25 will be growth driver, said Nilesh Shah. "The monthly capex must go up from Rs 69,000 crore a month to Rs 1.16 lakh crore if we have to achieve the full-year projected target. We hope this is achieved," he added. The consumption trends seems to have revived between Diwali and Christmas, and a forecast of Rs 6 lakh crore worth of wedding-related expenditure is expected to boost consumption further, Nilesh Shah said. To top it up, investors can expect a bumper rabi season as well, which should support the rural recovery.
For investors, he said, the challenge will be to manage return expectations. "My worry markets will not deliver returns as expected by them."
"Last five years' returns are unlikely to be repeated in next five years," said Nilesh Shah, as the base is high, and valuations are fair. The benchmark indices have delivered a near-10% return so far this year, with broader market midcap index higher by 25% so far this year. While the earnings growth of last five years may be challenging to repeat, Nilesh Shah said he is bullish on some of the reasonably valued sectors. IT, Pharma, private banks, and telecom can outperform in 2025, while infrastructure, defence, railways' outperformance may not continue in 2025, he said.
Investors will be wiser to place their bets on broader themes like capex plays, consumption, rural recovery, telecom, healthcare, and financial services in 2025.
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