ETMarkets Smart Talk: From Solar to Switchgear—Capex Themes Remain Strong, says Arvind Kothari

Time of India

15 hours ago

In this edition of ETMarkets Smart Talk,
Arvind Kothari
, smallcase Manager and Founder of Niveshaay, shares his bullish view on capital expenditure-driven themes that continue to offer strong long-term potential despite near-term market volatility.
From
solar
energy and power infrastructure to defense manufacturing and green technologies, Kothari believes India's investment cycle remains robust, backed by policy tailwinds, liquidity support, and shifting global dynamics.
In a conversation that spans rate cuts, block deals, smallcap valuations, and rural consumption, he explains why sectors like
switchgear
, textiles, and clean energy are likely to lead the next wave of wealth creation. Edited Excerpts –
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) Inflation and interest rates go hand in hand, and RBI has done a surprise 50 bps rate cut where the market expectations were for 25 bps. They've been proactive in ensuring that consumption gets the necessary boost, and 50 bps cut is their effort in front-loading the accommodative stance they held.
The central bank has also been very active in the credit markets, ensuring that banks have enough liquidity to fuel credit growth.
But, what's perhaps more significant than the headline 50 bps rate cut is the gradual 100 bps reduction in the Cash Reserve Ratio (CRR), bringing it down to 3%. This move will unlock ₹2.5 lakh crore worth of liquidity into the banking system by this year.
Under the leadership of
Shaktikanta Das
, the RBI team has managed a delicate balance—addressing inflation concerns, keeping the rupee stable, and maintaining interest rates at levels that are conducive for growth. Looking at the trajectory, CPI is comfortably within the RBI's target range of 2-4%.
However, the RBI has mentioned that global growth might slow down due to ongoing tariff wars, and despite three rate cuts this year, we haven't seen a significant pick-up in credit offtake yet.
RBI has maintained an economic forecast for the country targeting 6.5% GDP growth, and now shifted its stance from accommodative to neutral, I don't foresee any further cuts beyond 25 bps for the rest of the year.
Q) What is your call on the small & midcap space? Are they still trading at expensive valuations, and are large caps still a better play?
A) The small and midcap space has long been a magnet for investors, especially post-pandemic, when it seemed to offer the promise of high growth and endless potential. These stocks, once seen as the underdogs, have been trading at elevated multiples, and the optimism surrounding them is hard to ignore. Take the Nifty Midcap 100, for instance—trading at over 30x PE, which is well above historical averages. It's a reminder of just how much hope is riding on these names. But as we look ahead to FY26, there's a shift.
Growth projections are beginning to soften, with global challenges and inflation weighing on sentiment. And with these elevated valuations, there's always a risk of the bubble bursting if these stocks don't deliver as expected.
On the other side, large-cap stocks are facing a different kind of dilemma. The sectors that once dominated the market—FMCG, tech, and banking—are struggling to keep pace.
They've given returns to investors, but those returns seem to be slowing down. Meanwhile, emerging sectors like Solar, EV,
Green Energy
, and Recyclables are making waves.
These areas are still largely the domain of small-cap companies, who are positioning themselves as the future of the market. Yes, while smallcaps may carry a valuation risk, largecaps are facing a demand risk that I'm not willing to take.
The stock market has evolved. What used to be challenging—finding a high growth company at a reasonable valuation—has only gotten harder. With information now readily available to everyone, factors are priced into stocks much faster.
But despite the market's smarts, the opportunity lies in innovation and demand. That's where the real magic is, and for me, the potential for reward remains in the smallcap space.
If I am right or wrong here only time will tell, but one thing's for sure—the game is changing. And, as always, it's the ones with the most disruption who win.
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)
Block-deal activity this year has been exceptionally robust, with promoters offloading roughly ₹71,000 cr of stock by early June with the majority coming at ₹43,400 cr sold in May alone.
High-profile names like Wipro, Suzlon and Bajaj Finserv featured prominently, but similar flows have been seen across both large-cap and mid-cap segments.
Promoter selling isn't inherently bearish; its signal depends on why the shares are being offloaded and what ownership remains afterward.
In many cases, promoters trim stakes to meet minimum-public-shareholding rules, unlock liquidity for estate or philanthropic planning, onboard marquee strategic or long-only investors, optimize taxes near fiscal year-end, or fund expansion in privately held group businesses—none of which imply deteriorating prospects for the listed entity.
The key is context: if the promoter still retains a commanding stake, the sale occurs at only a modest discount, and company fundamentals remain intact, the transaction is simply a liquidity event that can broaden free-float and deepen institutional ownership.
Only when divestments coincide with slipping earnings, heavy pledge unwinds, or a steady slide toward loss of control do they flash red.
In short, promoter sales can stem from multiple benign—even constructive—reasons, so they should be assessed case by case rather than viewed as an automatic negative.
Q) Thanks for taking the time out. 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)
Despite volatility in June, we remain constructive on markets over the medium to long term. The correction earlier this year stemmed from valuation normalization and seasonal tax-loss selling, during which we advised investors to top up.
Our portfolios stayed fully invested and resilient, supported by timely reallocation to high-growth sectors and earnings-focused companies.
While tariff-related uncertainty added near-term noise, we believe such disruptions ultimately catalyze global realignment. India is well-positioned to benefit from shifting supply chains, and we have actively positioned ourselves in sectors poised to gain.
Structural tailwinds and strong domestic fundamentals make us optimistic for the long run.
Q) COVID cases are rising. Can this fuel hospital stocks, or should investors keep an eye on that theme? What are your views?
A) India is seeing a rise in COVID-19 cases again. Unlike earlier waves, the current environment is better prepared — higher vaccination rates, stronger hospital infrastructure, and milder cases mean hospitalization surges are likely to be more controlled.
Importantly, investor sentiment has evolved. COVID-19 is now viewed as a recurring risk rather than a major shock. Hospital stocks may not see the same sharp rally unless hospitalizations spike meaningfully.
Many have already priced in recurring waves. Our view is that selective opportunities exist in hospitals with diversified revenue streams, particularly those focused on oncology, cardiology, neurology, elective surgeries, and chronic disease management, as these areas offer structural growth and margin stability.
Beyond COVID-19, we see strong potential in sectors driven by long-term trends such as an aging population, medical tourism, and the rising incidence of chronic illnesses.
Investors should stay agile, closely monitor hospitalization data, and diversify their exposure by including diagnostics and e-health platforms in their portfolios.
While rising cases may offer some short-term support to the sector, the bigger opportunity lies in strong fundamentals and growth beyond COVID.
Q) Which themes look attractive to you for the next 6-12 months amid trade war ears, strong dollar and possible scenario of falling interest rates?
A) Honestly, with all the trade tensions going on, a strong dollar, and the reduced interest rate, a few themes really caught my eye for the next 6-12 months. First up is defense manufacturing.
With all the geopolitical stuff happening—from India-Pakistan to Russia-Ukraine and the US-China rivalry—countries are rushing to upgrade their military gear. India's push to make defense equipment locally, along with big defense budgets, means lots of orders are coming in.
The strong dollar makes Indian gear cheaper for buyers abroad, and if interest rates drop, it'll be easier to finance those big deals. So, defense looks pretty promising. Then there's textiles and apparel exports.
Since buyers want to move away from China, India's textile makers are in a good spot with solid supply chains and quick turnarounds. The strong dollar helps them compete better internationally, and lower interest rates would mean cheaper working capital, which is great for business.
And lastly, the power sector is booming. Governments are investing big in upgrading grids and clean energy, which means lots of demand for transformers, switchgear, and other equipment.
India's spending a lot on this, and with global green energy pushes, this sector should keep growing fast. Plus, if interest rates come down, financing these big projects gets easier.
Q) The IMD has predicted a normal monsoon in 2025 – do you see this supporting consumption stocks/auto stocks?
A)
The Indian Meteorological Department (IMD) has projected a normal to above-normal monsoon in 2025, which is expected to be a strong tailwind for India's rural economy.
Timely and well distributed rainfall typically supports robust sowing of Kharif crops, boosts farm income, and reduces food inflation. This, in turn, lifts sentiment and purchasing power across rural India—a segment that accounts for nearly half of the country's overall consumption.
This is expected to reflect a stronger demand for FMCG staples, two-wheelers, tractors, and rural lending products. From a market perspective, this sets a constructive tone for consumption and particularly the tractor segment, which closely tracks farm incomes and crop cycles.
FMCG volumes often revive as basic staples gain traction in rural households, while agri-input sectors such as fertilizers and agrochemicals could also benefit as better rainfall supports farm activity.
Urban discretionary spending may see mixed trends due to weather disruptions, but a rural-led recovery could provide an important counterbalance to aggregate demand. That said, monsoons alone do not drive the consumption cycle.
Structural factors like job creation, rural wage growth, and government support will remain crucial. Our view is that the rural economy has been showing early signs of bottoming out, and a favourable monsoon could accelerate that recovery.
We expect staples and select rural-focused categories to gain first, followed by a broader pickup in discretionary demand as the year progresses.
Q) Is there any theme or sector where one should avoid fresh investments in the current environment?
A) In the near term, it makes sense to steer clear of highly cyclical, interest-rate-sensitive sectors such as automobiles facing slowing consumer demand, rising input costs, and inventory overhang and building materials/real estate which is hampered by elevated rates, muted housing starts, and tight project funding.
However, the longer-term fundamentals in areas like power transmission & distribution, recycling, defense, and water infrastructure remain intact—driven by secular capex tailwinds, supportive policy frameworks, and structural demand growth—making those themes compelling holds over a multi-year horizon.
Q) Many investors who stayed on the sidelines in the beginning of 2025 and are now experiencing FOMO as markets have seen a significant rally, but it is still down by about 5% from highs. Should they adopt staggered buying, keep cash or do a lump sum investment?
A) Given the current market valuation, a staggered buying approach is preferred: front-load ~25– 30% into high-conviction ideas, phase in the balance over the next 3–4 months.
This investment style smooths out timing risk and lets you capture intermittent market dips when prices moderate as India's long-term growth story remains intact Q4 FY25 earnings broadly indicate a healthy corporate landscape.
We've seen revenue growth across manufacturing and consumption sectors, supported by healthy margins and strong corporate balance sheets. This trend is expected to continue moving forward.
While some sectors like IT and FMCG faced headwinds, cyclicals such as real estate, industrials, defence and capital goods performed well, reflecting an underlying economic strength. Government initiatives are actively fueling domestic manufacturing, creating a conducive environment for growth.
The "China + 1" strategy is increasingly benefiting India, with the India UK FTA proposing lucrative prospects, we're seeing an acceleration of growth rates in key sectors.
Niveshaay's focus is on identifying cash-generating companies in high-growth emerging sectors, aligning with long-term wealth creation goals. This disciplined approach will help navigate the current market effectively and position for sustainable long term returns.
(
Disclaimer
: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)