The market risks around Donald Trump coming to power, persistent foreign selling, a strengthening of the dollar and weakening of the rupee, a slowdown in government capex spending and economic growth, earning slippages and all of this when valuations are at the higher end of the historical averages. This is the time you can easily get things wrong. Here are five ideas for 2025 from a very young but sharp portfolio manager, Buoyant Capital's Jigar Mistry.
Mistry said, "Earnings slowdown may not be as temporary as we think." He went on to add, "Consumption is witnessing seemingly tepid growth (this includes most of the FMCG plays), driven by sort of capital spending across parameters. Gross fixed consumption might have seen some of its aspects touch peak levels, or close – affecting central budget and decision-making. Meanwhile, private corporation spending may never return to those pre-2015 highs as a percentage of GDP because the capex is a lot more responsible compared to what it was back then." The key change here, as per Mistry, is the change in state government spending. On the other side, real estate and house dwellings, among others, may take a bit of a breather.
The central government's ability to spend might be curtailed, but there has been withdrawal in fiscal deficit as well. Projections suggest a 4.5-4.9 percent deficit for next year. "Government might want to exercise extreme fiscal prudence. They might want to get that triple A rating for India. And the path to that is a continued fiscal prudence. So, there’s not enough headroom for the government to increase spending," explained Mistry.
Mistry also weighed on consumption trends while highlighting that it would be wrong to presume per capita GDP is not growing. "It's just that the GNI coefficient around it is wider than one would have hoped. And therefore, consumption is happening in specific areas."
Mistry thinks that earnings could see some amount of normalisation next year. “For next two years, we will be below the trajectory of 12 to 13 percent. But that can be unevenly spread between FY25 and FY26,” he said.
Mistry believes that consumption, large private sector banks and healthcare businesses could be some areas to expect surprises from. On the other hand, he expects capex investment teams to bring in seemingly negative surprises.
Mistry’s second idea for 2025 is to look at continued flows, saying “they can’t drive the fundamentals. Flows are a dependent variable, not an independent variable.”
“We might get into a phase of elevated valuations because the flows are so strong. So, you might not see significant correction. For the shorter term, it's always possible that narratives hold on to more longer periods of time than fundamentals would,” he said.
The various segments in the market have been under focus for the past few years, pertaining to expectations surrounding large cap alphas. Mistry highlights this as his third idea, that even though fundamentals tend to have a greater bearing, flows in the shorter period of time do impact share prices. Flows might not be a determinant of stock price movements, but only in the long term.
“As an investor, it is slightly more difficult to predict flows compared to earnings. The problem is that the free flow market cap of small and micro-cap is a third of large cap, whereas the size of mutual funds is almost similar. And that is creating a virtuous cycle for stock prices at the moment until self-organized criticality takes over. But larger caps will tend to do a lot better over small and micro caps over the next year or so,” believes Mistry.
The fourth idea for Mistry is to be wiser in CY25: to start thinking of those businesses where the implied valuation is so high that even if the growth in earnings continues, the stock price may not react very positively for an extended period of time.
The fifth idea, Mistry suggests is that aligning portfolio beta (a measure of a portfolio's volatility relative to the market) can be a more effective strategy than making large cash calls. He argues that when markets are aggressively priced, as they are today, investors might be better off running a lower beta portfolio. In essence, this means adjusting the portfolio's risk level to better match the current market conditions, rather than withdrawing a significant portion of investments (cash calls), which can be difficult to time accurately.
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