if you wanted to get 10 lakh, what will be your investment strategy?
At this point, my equity allocation would be around 50%…about 25% would be to gold or silver ETFs and 25% would be in fixed income. I’m thinking about me personally, considering my current asset allocation and my financial goals. But obviously it’s different for different people.
In light of the recent human metapneumovirus (HMPV) outbreak in China, do you expect investors to panic, or should they remain calm?
Although this virus needs serious attention, it is not a cause for panic.
This year, we are coming into the market with a very strong four-five year lead. So, it’s time to temper expectations. There is some slowdown in returns based on valuations, global macro and even domestic economy and corporate earnings. So, I think it’s fair to say: keep expectations low this year.
Apart from Trump’s swearing-in and Union Budget, what are the key events investors should keep an eye on?
Apart from Trump’s policies, central bank actions are key. The US Federal Reserve is expected to continue cutting rates this year, although expectations have dropped by 50 basis points, with bond markets also skeptical of this.
Another important factor is the Fed’s quantitative tightening, which has reduced its balance sheet from $11 trillion to less than $3 trillion. Therefore, when there was excess liquidity, the markets were able to digest it. If US quantitative tightening continues, even when US bank liquidity and reserves are exhausted, this could be something that could be a cause for concern for the market.
India’s GDP
Another global factor to monitor is how China’s stimulus measures pan out. Although some actions have been announced, further steps are expected once Trump’s policies and tariffs become clearer. If China opts for a significant currency devaluation in response to increased tariffs, it could create a ripple effect across the markets, making a currency war a major concern.
Domestically, the focus should be on the pace of India’s GDP growth, which has been slow. The latest advance estimates project GDP growth this year at 6.4%. Growth trajectory and corporate earnings will be important areas to watch.
What are your expectations from the Union Budget?
We will look at the pace of fiscal consolidation being undertaken by the government. In the last five years, there has been a big step up in capital expenditure by the government and they have already made huge strides on the capital expenditure front. So, I think that role has been fulfilled.
In the last two years, they have been reducing the fiscal deficit. This year, the expectation is it will be 4.9%, and next year, the target is 4.5%. We want to see which path they take. On the one hand, fiscal consolidation is necessary and welcome.
On the other hand, we also do not want to tighten the fiscal side too aggressively because we are clearly seeing some signs of slowdown in the economy. We need to see that there is an orderly deceleration or reduction in fiscal deficit during the year.
Apart from Trump’s policies, the central bank’s actions are important… Another global factor to monitor is how China’s stimulus measures unfold… Domestically, India’s GDP growth pace needs to be noted Needed
The second part is really stability, continuity and simplification of taxation. There was a change in capital gains tax last year. So, I think that’s another big factor to look at.
Do you expect its rollback?
I think we’ll be glad it won’t increase further.
Do you expect any measures related to futures and options (F&O) in the budget?
The central government accelerated some additional transactions last year, but more importantly, there have been significant actions by regulators. These measures, announced in October, are currently being implemented. Some were introduced in November, others were scheduled to take effect on January 1, and some will begin in February. These steps have shown some moderation in removing the excesses seen earlier.
Going forward, regulators are likely to monitor the impact of these measures to assess whether they meet their objectives. If not, additional actions may be considered. However, I do not expect much from the budget on this front.
Keeping in mind the Trump factor and the budget, what are the areas you look forward to 2025?
The market in 2025 will be a tale of two parts. The first half will actually be more challenging… because of slower economic growth and a slowdown in corporate earnings growth. We have seen that Nifty’s earnings growth in the last two quarters has been only 6% or 7%. Even in this quarter, it is likely that earnings growth in many sectors including auto, banks and cement will be only 5%.
better half
If you look at global commodity sectors like oil, gas and metals, they will all report flat to negative earnings growth. So, while valuations for many of these sectors, particularly financials, are quite attractive, our earnings growth will not support them. This is also at a time when global flows are not favourable, and the reason is that US yields have been rising steadily.
By the second half, these headwinds should subside, corporate India will return to double-digit earnings growth and offer new opportunities. In the first half, smaller sectors with strong earnings visibility such as travel, tourism, hospitality, healthcare and EMS (electronics manufacturing services) are likely to outperform. The latter is expected to improve in backward sectors such as financials and consumer goods.
What are your views on measures to promote consumption? Do you expect anything on that front? Do you expect the government to step up capital expenditure on a large scale or not do anything major?
The government has significantly increased capital expenditure, with central government spending rising from 1.5% of GDP a few years ago to about 4% today. However, implementation challenges remain, such as some budget allocations Rs 56,000 crore for bond buyback, the limit will be further increased.
In the last five years, there has been a big step up in capital expenditure by the government and they have already made huge strides on the capital expenditure front. So, I think that role has been fulfilled.
Corporate balance sheets are strong and leveraged, suggesting the next wave of capital spending should come from the private sector. However, sluggish consumption and concerns over global overcapacity, particularly in China, have dampened appetite for private investment.
Encouragingly, substantial capex plans are emerging in new areas such as renewable energy, EVs, battery storage and green hydrogen. It will be important to translate these plans into tangible investments in the coming years.
AI is often highlighted as one of the key focus areas. What do you think about taking advantage of such topics? Are there any other notable topics?
India offers many emerging themes, although they often represent small sectors of the broader market. In healthcare, companies are focusing on innovation, CDMOs (Contract Development and Manufacturing Organizations) are securing growing business opportunities and showing promising growth.
Change in consumption patterns is another important trend. These include changes in accelerated commerce and evolving spending habits such as what consumers prioritize in their consumption baskets, from staples to new categories. These changes are opening up new opportunities.
niche topic
Export-oriented industries are gaining momentum, supported by the China-plus-one strategy. Success has been seen in mobile phone manufacturing, with progress now extending to laptops and components, marking an important growth area.
The textile industry also shows promise, driven by the efforts of smaller companies, while premiumisation in sectors such as travel, hospitality and related sectors continues to perform well.
Although these topics have potential, they remain niche areas in the larger market landscape.
In 2024, we saw gold ETFs become quite popular. Do you expect this trend to continue in 2025?
Yes I think so. The fact that gold is making a comeback as an asset class is significant. Gold has become an important asset in an environment of low confidence in currencies. When global liquidity grows faster than global GDP, gold performs well.
Another factor… has been the risk for central banks to keep all their assets in dollar terms, which has led to an increase in central bank purchases of gold. Major central banks, including countries such as China and Saudi Arabia, hold gold reserves that make up only a small percentage of their total assets. This leaves significant scope for these central banks to increase their gold holdings.
Given these factors, especially central bank buying, gold will remain a strong asset into 2025.
Apart from gold ETFs, index funds and thematic sectoral funds attracted significant attention in 2024. How can investors independently select the right ETF, index fund or any other fund? Can investors still take advantage of trends like the growth potential of gold ETFs and others?
Thematic funds and ETFs cater to sophisticated investors who understand market trends and seek out specific opportunities. For most, flexi-cap or multi-cap products are better, as they avoid dependence on single sectors or capitalizations, which are prone to changing trends. Diversifying strategies also reduce the tax impact of individual trading.
In 2024, thematic funds gained popularity as index-heavy sectors like banking, IT and consumer staples underperformed, leading to better returns for these funds. However, for medium to long-term, less active investors, diversified strategies remain more reliable.
With faster market cycles and more uncertainty, diversification is important. Cycles that once took years now occur in months, as seen in volatile US markets. Diversification reduces risks and ensures potential profits even during temporary underperformance in specific asset classes.
