However, he said in this interview that stricter visa regulations will not pose a major threat to India’s IT giants. Edited excerpt:
The next few weeks will be action-packed for investors, with the ongoing third-quarter earnings season, President Trump’s swearing-in, the Federal Reserve meeting, and in the midst of the federal budget process back home. What is your strategy when volatility is likely to be higher than normal?
We track these events when they are relevant to long-term trends in the economy and capital markets. Our investment approach is not very responsive to news events unless they significantly change our view of a company’s business. We continue to support high-quality companies with sound fundamentals and strong balance sheets. Arguably, such companies should be in a better position to weather the disruption caused by the events described above.
Do you think downward earnings revisions will come back to haunt investors in Q3 earnings season? What are the broad sector expectations from Q3 earnings?
The potential for further earnings compression is clear, especially in small- and mid-cap stocks and some markets where valuations remain high. Broad consensus earnings expectations for the third quarter are relatively positive for the communications, real estate, and pharmaceutical sectors. Lenders exposed to consumer lending may understate the numbers due to increased provisions for unsecured loans. Consumer discretion may become even more complex as holiday spending is partially offset by a cyclical slowdown in demand.
While the brokerage consensus seems to favor large-cap stocks, many blue-chip stocks have underperformed over the past two to three years. Do you think the valuations of damaged blue-chip stocks are still attractive enough in 2025?
Nifty50’s forward P/E ratio is within the historical average range and is reasonable when compared to the small- and mid-cap space. If you look at a wide range of valuations, there are opportunities in large private banks and perhaps even the life insurance industry, where you can find well-managed companies with strong fundamentals. The Nifty Private Bank Index has lagged the PSU index and the valuations of most large private banks have been reduced in the past five years. In terms of fundamentals, large banks do not have major credit problems and are generally well prepared for unexpected events. Most private banks are increasing their market share. At a more fundamental level, the growth of large private banks is tied to GDP growth, so if you expect the economy to grow at a nominal 10-12% over the next decade, private banks will grow at least as fast. It should be. It’s not fast.
Given the Street’s low expectations for Q3 earnings season, do you think Nifty’s current valuation is reasonable enough to limit significant downside unless triggered by shocking external events? ?
At least for Nifty, I don’t think it should be a big negative from current levels. However, some stocks may experience larger drawdowns due to lower valuation multiples.
How could President Donald Trump’s inauguration affect the Indian stock market? IT is seen as a winner, but there are also threats from stricter visa regulations. Which Indian exporters are likely to be adversely affected by President Trump’s rule?
If some of President Trump’s key campaign promises, such as tariffs and immigration control, are implemented, they could put upward pressure on inflation and government bond yields, impacting capital inflows to India. After the first Trump presidency, many Indian IT companies have reduced their reliance on H1B visas by increasing local hiring, expanding nearshore distribution centers in Mexico and Canada, and strengthening their offshore presence. Ta. Therefore, tightening visa regulations should not be a big threat, at least for the IT sector. On the other hand, given India’s geopolitical position and good relations with the United States, our country should not be at a disadvantage under the Trump administration. In fact, lower oil prices could be a net positive for us if our stated intention to increase U.S. fossil fuel production materializes.
What do you expect from the Union Budget from a capital market perspective?
Tax collections have increased by about 9% since the beginning of the year, and government capital spending will increase significantly in the next budget as the government pledges to reduce the budget deficit to about 4.5% of GDP by FY26. It is difficult to envisage an increase. Additional funding may be provided to PLI schemes that are gaining traction in certain industries. Some lawsuits seek to correct some of the tax disadvantages of debt products over stocks. As private sector capital investment increases, debt capital markets will become an important source of funding for companies.
The capital expenditure theme slowed down after the Lok Sabha election results were announced in June last year. Do you think there is a market for rail, defense and other capex stocks heading into the budget, or are investors likely to be disappointed?
Given the constraints on government spending, I think we are likely to be disappointed. The market may also place more emphasis on realizing profit growth through the execution of existing projects for these stocks.
Following the market correction after the end-September peak, which sectors are attractive from a valuation perspective?
Some FMCG and consumer stocks, affected by continued demand weakness and increased competition, look attractive over the long term if we expect consumer spending to eventually improve. Dew. Our strategy remains equity-focused, focusing on clean, well-managed franchises with earnings visibility and reasonable valuations. Even as value stocks have outperformed over the past four years, a number of these quality long-term compounding stocks have underperformed. However, our investment style remains sector and theme agnostic.
