While Indian equities have delivered a strong performance in the first half of 2025, Poddar cautions investors against chasing overheated sectors.
He advises staying selective and avoiding segments like private defence, travel, and consumer staples, where valuations have run ahead of fundamentals.
In this candid conversation, Poddar also highlights sectors with strong growth visibility, his views on monetary policy, and how investors should navigate the rest of the year amid global headwinds and evolving domestic triggers. Edited Excerpts –
Q) After a stable May, the market turned volatile in June. 1H2025 has been robust with Nifty closing in the red in just 2 out of the last 5 months; however, we still underperformed EM peers in 2025. How do you see markets in the medium-to-long term?
A) Indian equity markets have delivered a strong performance in the first half of FY25, with the Nifty 50 rising by approximately 12% between March and May.
This is almost double the 6.6% gain registered by the MSCI Emerging Markets Index during the same period.
The rally was largely driven by robust corporate earnings, particularly from private sector banks, and a cooling of global trade tensions.
However, despite the rebound, India’s year-to-date gains in USD terms still lag behind emerging market peers.
The MSCI India index is currently trading at a significant premium—around 20 to 20.5 times forward earnings—compared to approximately 12 times for other emerging markets.
This has led to increased hedging activity, with foreign investors adding roughly $2 billion in Nifty futures shorts in early June.
India continues to be a structurally strong market, supported by solid domestic consumption and minimal dependence on China.
With GDP growth expected in the range of 6.3% to 6.8% for FY26, we remain constructive on the long-term outlook.
However, investors should be prepared for bouts of volatility, driven by elevated valuations and global uncertainties.
Q) What is your take on the outcome of the MPC meeting in June? What is the trajectory you foresee for rates in 2025?
A) The RBI’s Monetary Policy Committee delivered a larger-than-expected 50 basis points rate cut in June, bringing the repo rate down to 5.5%.
Additionally, the Cash Reserve Ratio was lowered by 100 basis points to 3%, injecting significant liquidity into the banking system.
This policy shift was made possible by benign inflation, with CPI at 3.2% in April, and aims to support growth.
The RBI also revised its FY26 inflation forecast downward to 3.7%, well below its target of 4%, while maintaining its GDP growth projection at 6.5%.
The change in stance from ‘accommodative’ to ‘neutral’ signals that further rate cuts may be limited. We expect at most one additional cut in 2025, and anticipate a prolonged pause thereafter unless growth shows significant signs of weakness.
Q) Which themes look attractive to you for the next 6–12 months amid trade war fears, a strong dollar, and a possible scenario of falling interest rates?
A) Several themes appear compelling in the current macro environment. We see strong potential in the financial sector, particularly among large private banks and clean-balance-sheet PSU lenders.
The combination of lower funding costs and ample liquidity is likely to revive credit growth, especially in the retail and MSME segments.
The automobile and rural consumption sectors are also expected to perform well, supported by a favourable monsoon which tends to boost farm incomes and rural demand.
Rural India accounts for a significant share of two-wheeler and entry-level passenger vehicle sales, and we anticipate a positive volume impact in the coming quarters.
In FMCG, companies with deep rural penetration stand to benefit, particularly those focused on staples rather than discretionary goods.
Industrial and infrastructure stocks are supported by government capex, defence spending, and ‘Make in India’ initiatives. However, selectivity is important as valuations in segments like private defence are already elevated.
India remains relatively insulated from global trade conflicts, which adds to the attractiveness of domestic demand-driven sectors such as consumption, financials, and infrastructure.
Q) The IMD has predicted a normal monsoon in 2025. Do you see this supporting consumption and auto stocks?
A) Yes, a strong monsoon is likely to provide a meaningful boost to rural demand. The IMD has forecast rainfall at 106% of the long-period average, with June expected to be particularly strong.
This is positive for farm incomes and will directly support sectors like automobiles, particularly two-wheelers and rural passenger vehicles.
FMCG companies that generate a large portion of their revenues from rural markets will also benefit, especially those focused on essential goods.
Moreover, a good monsoon helps in keeping food inflation in check, further supporting discretionary rural consumption.
Q) How do you see flows—FIIs have recently turned positive on Indian markets, while DIIs have supported the rally. Do you see a reversal of flows into Indian markets?
A) Foreign institutional investors were net buyers during March to May, pumping in nearly ₹17,000 crore into Indian equities.
However, early June data suggests a shift in sentiment, with FIIs adding significant short positions in the derivatives market, indicating caution around further upside.
On the other hand, domestic institutional investors, including mutual funds and insurance companies, have maintained their bullish stance with over ₹3 lakh crore in net equity purchases year-to-date.
Retail participation through SIPs also remains strong. Going forward, we expect DII flows to remain a stable source of support, while FII flows will likely remain sensitive to global macro factors such as the US dollar trajectory, interest rate expectations, and geopolitical developments.
Q) Is there any theme or sector where one should avoid fresh investments in the current environment?
A) Investors should be cautious about sectors with overstretched valuations and limited earnings visibility. This includes certain segments within consumer durables and FMCG staples.
We also recommend prudence in private defence stocks, which are trading at very high multiples, and in travel and tourism companies that may face global demand headwinds.
Within financials, smaller banks and NBFCs with governance or asset quality issues should be avoided until there is greater clarity on their fundamentals.
Q) Have you seen the recent trend of block deals taking place? Is that largely promoter selling? If yes, is that a worrying sign for stocks or is it business as usual?
A) There has indeed been a spike in block deals, with promoters offloading shares worth approximately ₹43,400 crore in May alone. These include notable transactions such as InterGlobe’s stake sale, BAT’s exit from ITC, and Singtel reducing its stake in Airtel.
While many of these sales are linked to liquidity provisioning for institutional investors or funding new business ventures, large-scale promoter exits near market highs can influence sentiment.
It is important to evaluate the context—sales aimed at reducing debt or facilitating new investments are generally not cause for concern. However, indiscriminate selling without clear rationale could be a signal to tread cautiously.
Q) What is your call on the small and midcap space? Are they still trading at expensive valuations, and are large caps a better play right now?
A) Despite meaningful corrections since their peaks in December 2024, small and midcaps are still trading at elevated valuations. The SmallCap100 is down around 22%, and the MidCap100 has declined by roughly 18%.
Even after the pullback, small caps are trading at about 24.5 times forward earnings compared to their 10-year average of 16 times. Midcaps are trading at nearly 36 times, well above their historical average of 22 times.
In comparison, the Nifty50 is more reasonably valued at around 19.9 times forward earnings. Given this backdrop, we prefer large caps and select midcaps with strong balance sheets and consistent earnings visibility.
Small and midcaps may need to see further valuation adjustment before becoming attractive again.
Q) Many investors who stayed on the sidelines in the beginning of 2025 are now experiencing FOMO. Should they adopt staggered buying, keep cash, or do a lump sum investment?
A) At current market levels and given the volatility we’ve seen, a staggered or systematic approach is advisable. Investors should consider deploying capital in phases—either through SIPs or by setting buy levels at 3–5% corrections in quality stocks.
It’s also wise to maintain some cash allocation to take advantage of market dips. A disciplined, gradual entry strategy helps mitigate timing risks and aligns better with long-term wealth creation goals.
Q) COVID cases are rising. Can this fuel hospital stocks, or should investors keep an eye on that theme? What are your views?
A) As of June 8, active COVID-19 cases in India remain relatively low at just over 6,100. While hospital stocks did attract some safe haven buying in April, valuations in the sector are already elevated.
A moderate increase in cases is unlikely to drive significant earnings growth for healthcare companies. That said, the sector remains a sound defensive allocation.
For those looking at healthcare, we recommend focusing on operationally strong and cash-rich providers. Vaccine and diagnostics play may see some activity, but investors should be cautious about overpaying in a high-multiple environment.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
