Although Indian stocks achieved strong performance in the first half of 2025, Podal has warned investors as they chase after an overheated sector.
He recommends selecting and avoiding segments such as private defense, travel, and consumer staples, where evaluations go beyond the foundation.
In this candid conversation, Podal highlights the sector with strong growth visibility, his views on monetary policy, and how to navigate the rest of the year amid the evolution of global headwinds and domestic triggers. Edited excerpts –
Q) After a stable May, the market became unstable in June. 1H2025 has been robust with red, nifty closures in two of the past five months. However, we hadn’t performed EM peers in 2025 yet. How do you view the market over the medium to long period?
a) Indian stock market achieved strong performance in the first half of fiscal 2025, with the Nifty 50 rising by around 12% between March and May.
This is almost twice the 6.6% gain registered by the MSCI Emerging Markets Index over the same period.
The rally was driven primarily by robust corporate revenues, particularly from private banks, and by cooling global trade tensions.
However, despite the rebounds, India’s profits on US dollar terms from the beginning of the year have fallen behind emerging market peers.
The MSCI India Index is currently trading at a significant premium with positive revenues of 20-20.5 times, compared to about 12 times in other emerging markets.
This increased hedging activity, with foreign investors adding around $2 billion of nifty future shorts in early June.
India remains a structurally strong market, supported by solid domestic consumption and minimal reliance on China.
GDP growth is expected to range from 6.3% to 6.8% in FY2026, so it remains constructive with a long-term outlook.
However, investors should be prepared for seizures of volatility driven by increasing valuation and global uncertainty.
Q) What do you think about the results of the June MPC meeting? What is the trajectory foreseeing prices in 2025?
A) The RBI’s Monetary Policy Committee cut the repo rate by 50 basis points in June than expected, lowering its repo rate to 5.5%.
Additionally, the cash reserve ratio fell 100 basis points to 3%, injecting significant liquidity into the banking system.
This policy shift is aimed at supporting growth, enabling it by benign inflation with a CPI of 3.2% in April.
RBI also revised its FY26 inflation forecast downwards to 3.7%, well below its 4% target and maintained its GDP growth forecast at 6.5%.
A change in the stance from “adjustable” to “neutral” signals means that further speed reductions may be limited. We expect up to one additional cut in 2025, and we expect a prolonged pause that follows, unless growth shows significant signs of weakness.
Q) Among the possible scenarios of trade war horrors, strong dollars and interest rate drops, which themes will look appealing to you over the next 6-12 months?
a) In the current macro environment, some themes look attractive. It could be strong in the financial sector, especially among large private banks and clean balance sheet PSU lenders.
In the retail and MSME segments, a combination of reduced funding costs and adequate liquidity could potentially revive credit growth.
The automotive and rural consumption sector is also expected to work well, supported by a favorable monsoon that tends to increase farm income and rural demand.
Country India has a significant share of motorcycle and entry-level passenger car sales, and we expect it to have an impact on positive volume in the coming quarter.
At FMCG, companies with deep rural penetration, especially those focusing on staples rather than discretionary products.
Industrial and infrastructure stocks are supported by government capital investments, defense spending and the “Make India” initiative. However, selectivity is important as segments like private defense are already rising.
India is relatively insulated from the global trade disputes that have become more attractive to domestic demand-driven sectors such as consumption, finance and infrastructure.
Q) IMD predicted a normal monsoon in 2025. Do you know what consumption and car inventory you support?
a) Yes, a strong monsoon may provide a meaningful boost to rural demand. IMD forecasts rainfall at a long-term average of 106%, with June being particularly strong.
This is positive for farm revenues and directly supports sectors such as automobiles, particularly motorcycles and rural passenger cars.
FMCG companies that generate a large portion of their revenue from the rural market are also companies that focus on essential products.
Additionally, a good monsoon helps to curb food inflation and further supports discretionary rural consumption.
Q) How do you view the flow? FII has been positive in the Indian market recently, while DII supports the gathering. Do you see a reversal of the trend towards the Indian market?
a) Foreign institutional investors were net buyers from March to May, pumping nearly 17,000 crore into Indian stocks.
However, data from early June suggests a change in emotions, indicating that FII has added significant short positions in the derivatives market and is paying more attention.
Meanwhile, domestic institutional investors, including mutual funds and insurance companies, remain bullish at over 3,000 Rs in their annual net stock purchases.
Retail participation through SIP is also strong. While DII flows are expected to remain a stable source of support in the future, FII flows may remain sensitive to global macro factors such as the trajectory of the US dollar, interest rate expectations, and geopolitical development.
Q) Are there any themes or sectors to avoid new investments in the current environment?
a) Investors should be aware of sectors where valuations are overgrown and revenue visibility is limited. This includes consumer durables and specific segments within FMCG staples.
We also recommend prudence in travel and tourism companies that can face headwinds of global demand, which are trading at very high multiples.
Within finance, small banks and NBFCs with governance or asset quality issues should be avoided until the basics are clearer.
Q) Have you seen recent trends in block trading? Is it mainly sold by promoters? If yes, is it a sign of concern for stocks or is it a business as usual?
a) In fact, block trading has skyrocketed, with promoters offloading around 43,400 crore worth of stock in May alone. These include notable transactions such as Interglobe stock sales, BAT exit from ITC, and Singtel.
While many of these sales are related to liquidity provisioning for institutional investors or funding new business ventures, large promoters exits near market highs can affect emotions.
It is important to evaluate the context. Sales aimed at reducing debt or promoting new investments are generally not the source of concern. However, indiscriminate sales without clear evidence can be a signal to step on carefully.
Q) What are your appeals on small and mid-cap spaces? Are they still traded at expensive valuations, and the big cap plays better now?
a) Small and medium caps are still trading at high ratings, despite meaningful revisions since the December 2024 peak. The SmallCap100 has dropped by about 22%, while the MidCap100 has dropped by about 18%.
Even after the pullback, the small caps are trading at about 24.5 times forward profits compared to an average of 16 times over the decade. Midcaps has been traded nearly 36 times, well above the historic average of 22 times.
In comparison, the NIFTY50 is more reasonably valued at approximately 19.9 times the advance revenue. Given this background, we prefer a big cap and choose a midcap with a strong balance sheet and consistent revenue visibility.
Small and intermediate caps may need to check further ratings before they become attractive again.
Q) Many investors who remained on the sidelines at the beginning of 2025 are currently experiencing FOMO. Should they adopt a sloppy purchase, maintain cash, or make lump sum investments?
a) Given the volatility we have seen at the current market level, we recommend a staggered or systematic approach. Investors should consider deploying capital to the stage through SIP or by setting a purchase level with a 3-5% revision of the quality stock.
It is also wise to maintain some cash allocations to take advantage of market dip. Disciplined, progressive entry strategies help reduce timing risks and better align with long-term wealth creation goals.
Q) COVID cases are on the rise. Should this fuel hospital inventory, or investors, be aware of the subject? What is your opinion?
a) As of June 8th, India’s aggressive Covid-19 cases remain slightly lower than 6,100. Hospital inventory attracted the purchase of safe shelters in April, but sector ratings have already risen.
A moderate increase in cases is unlikely to drive significant revenue growth for healthcare companies. That said, the sector remains a healthy defensive allocation.
For those looking at healthcare, we recommend focusing on operational strong, cash-rich providers. While there may be some activity in vaccine and diagnostic play, investors should be aware of overpayments in high multiple environments.
(Disclaimer: recommendations, suggestions, opinions and opinions given by experts are unique. These do not represent views of the economic era.)
