Edited excerpts from our chat about investing in 2025:
The market mood can change quickly from bullish to bearish, as we saw with the end-September peak and subsequent rally from the November lows. How bullish or bearish are you at this stage?
We are constructive on the market and believe the recent correction is a good entry point to start accumulating towards long-term wealth creation. Nifty revenue is expected to grow modestly around ~7% (on a high basis) in FY25E, putting Nifty back on double-digit revenue growth trajectory, with revenue growing at a CAGR of 15% from FY25 to FY27E It is expected that. Earnings growth is driven by higher domestic GDP growth, lower interest rates, and the continuation of a growth-supportive policy framework.
However, the focus going forward should be on investing in companies with solid long-term growth, strong balance sheets, less exposure to foreign shocks, and capital-efficient business models.
The Sensex and Nifty ended the ninth straight year in positive territory despite negative impacts such as geopolitical issues, weak earnings in the first half of 2025 and division of powers in the Lok Sabha elections. Can we expect double-digit profits in 2025?
The fair value of our Nifty is pegged at 28,300, valuing it at 21x FY27. Our Sensex target is pegged at 94,300. In 2025, the broader market is expected to see healthy double-digit gains. Therefore, we expect healthy double-digit growth in 2025.
Many investors are already adjusting their portfolios on signals that government capital spending is accelerating and the third-quarter earnings season is poised for an unexpected turnaround. Do you expect revenue to recover in the new year?
Due to a high base and volatile macroeconomic environment, Nifty’s earnings are expected to slow down in FY25E with modest growth of 7% YoY. However, going forward, with increased public and private capex, Nifty is expected to return to double-digit revenue growth trajectory, with revenue expected to grow at a CAGR of 15% from FY25 to FY27. Factors that enable revenue growth include: Healthy domestic GDP growth, low interest rates, and stable policy frameworkThe Maharashtra election results have triggered a fresh wave of buying in capex-related themes and PSU stocks. Do you think the PSU and capex theme will shine again in 2025?
While the trend in capital expenditures is moderate in the first half of 2025, the pace of the same has accelerated from September 2024 onwards. The government expects to reach 93% of the capital expenditure target of Rs 10.30 crore in FY25. The 2019-2020 election cycle also saw capital spending take a hit during the voting period, with capital spending recovering significantly in the subsequent period. We expect the same pattern to play out in the second half of the fiscal year 2025/2025.
As electoral enthusiasm wanes in CY25, state governments are expected to ramp up their state capex cycles, primarily in sectors such as renewable energy, power T&D, transport, and water.
The new year is also a time for a fresh start. If you were to start fresh with a capital of Rs 10 million, how would you recommend someone with a moderate risk appetite go about it?What should the asset allocation profile be?
Given the current context, the asset allocation for someone with a medium risk appetite might be 50% stocks, 40% debt, and 10% gold. Moreover, for every 5% decline in the Nifty, about 10% can shift from debt to equity until equity reaches 70%.
What are your top bullish themes for 2025 and why?
Important broad themes include (i) capital investment and infrastructure development; (ii) Premiumization and electrification. (iii) financialization, and (iv) Indian CRDMO players gearing up for global opportunities.
Overall, we believe the potential for capital spending is long-lasting given the government’s focus and the private sector’s strong balance sheets. Consumption-driven premiumization is also likely to be a decades-long theme in cars, hotels, or other discretionary consumption driven by rising per capita incomes. Similarly, important catalysts for the CRDMO sector are: a) The impending vacuum could create new opportunities with Novo Nordisk’s acquisition of Catalent, the world’s second largest CRDMO player. b) a likely improvement in the US biotech funding scenario, and c) the continuation of a coordinated China rebalancing push (regardless of the passage of the BioSecure Act). Considering product launches and advancements in charging infrastructure, electrification is a decade-long theme and will likely see tailwinds in 2025.
With all the bullish buying going on, what are the key risk factors that could derail the bull market we’re in?
As we approach CY25, the situation is unstable, with inward-looking policy expectations from the new US administration, unresolved geopolitical issues, and sluggish expectations for global economic growth. We will closely monitor these factors and their impact as the year progresses, as their deterioration remains a material risk to the market.
