Expert view: Market seeks clarity on tariffs; positive on consumer discretionary, AMCs, says Mohit Khanna of Purnartha
Expert view on markets: Mohit Khanna, CFP, Fund Manager, Purnartha One Strategy, believes the Indian stock market may remain rangebound until we get clarity on trade negotiations with the US. In an interview with Mint, Khanna shared his views on key risks for the markets, sectors that can generate alpha and trends of Q4 earnings. Edited excerpts:
The US is currently undertaking multiple trade/tariff-level negotiations with various countries, including India.
Till we get clarity on the results of those negotiations, markets are likely to remain rangebound.
On the other hand, some positive undercurrents are developing. IMD has predicted a normal monsoon this year (the fourth consecutive), inflation is trending below RBI's threshold level, and the ongoing Q4FY25 earnings have been satisfactory until now.
Moreover, as GDP growth is sliding, it makes a favourable case to accelerate interest rate cuts by the RBI. Thus, markets would need clarity on the tariff negotiations before making any decisive move.
Tariff negotiations are currently a key factor. Any large-scale potential conflict with the neighbours would be detrimental to the Government's development spending, which could create a negative sentiment in the markets (albeit temporarily).
Finally, we should be watchful of a sliding GDP growth rate, as it could lead to lower-than-expected corporate earnings in the upcoming quarters.
Investors should continue to hold a diversified multi-asset portfolio. While large caps do appear relatively cheaper than midcaps at an index level, I would refrain from making a factor—or sector-based investment decision in the current market situation.
The period of 'everything working' is behind us, and there is still some time for a secular one-sided run in the market.
Therefore, stock selection is more important than factor/sector selection now. Therefore, I advise a fundamental research-driven bottom-up stock selection process for building a portfolio.
As inflation is declining and pulling interest rates down with it, consumer-oriented businesses should generally do well.
Two factors are at play here: the lower interest expense and the lower tax liability due to reduced tax slab rates.
Both these factors are leaving more money in the hands of the consumer.
This implies that either the extra money will be spent on discretionary products/services or used for savings.
Therefore, I am focusing on consumer discretionary products/services and asset management companies (AMCs).
During the ongoing earnings season, many companies are indicating demand recovery in rural areas. IMD has also indicated normal monsoons this year.
Thus, rural recovery as a theme is gaining some momentum.
This will include some FMCG, two-wheeler, and small financing companies.
I am focusing on companies that are aligned with these themes rather than blanket sector calls.
The IT sector largely posted disappointing earnings for Q4FY25. This led to a lowering of forward estimates, even as management teams were confident of sequentially better Q1FY26.
While the cost of take-out and legacy system deals provides some base, it is the discretionary deals that provide the Indian IT sector with growth opportunities.
Clients are delaying discretionary and large-ticket deals as they seek more clarity on the ongoing trade/tariff negotiations.
The expectation is that tariff revenues earned by the US government will be used to lower tax rates in the US economy.
A lower tax rate would facilitate companies (clients of the Indian IT companies) to increase their IT spending budgets.
We continue to monitor the situation, as the sector has both positive and negative triggers. It is still in 'wait-and-watch' mode.
Certain PSU stocks in the infra, defence sectors have shown strong recovery recently. PSU Banks have underperformed their private peers.
We continue to evaluate companies on a bottom-up basis. We are very comfortable with a few PSUs in our portfolio.
So far, Q4FY25 earnings have been slightly better than previously anticipated.
Larger companies performed better than their smaller peers, and banking and financial Services companies were relatively outperformers.
Before the start of the Q4 earnings season, there were expectations that poor management commentary could lead to a downgrade of FY26 estimates.
That fear seems to be subsiding as more companies declare results. No bad news is good news in the current uncertain economic environment.
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Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.
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