Latest news with #AlokAgarwal
Economic Times
a day ago
- Business
- Economic Times
Focus on growth-oriented companies and stop going by market cap divisions: Alok Agarwal
Alok Agarwal, Head - Quant and Fund Manager, Alchemy Capital, says instead of categorizing markets by market capitalization, a more effective approach involves identifying high-growth sectors and segments, many of which are currently found in the midcap space. Consumer discretionary, chemicals, agrochemicals, real estate, EMS, hotels, hospitals, and capital markets demonstrate significant growth potential. Focusing on growth-oriented companies yields better results than solely relying on market cap divisions. ADVERTISEMENT Things seem favourable. Prime Minister Narendra Modi has given a GST bonanza going by the Independence Day speech. Nifty has touched the 25,000 mark. Are we entering into a phase where select high growth counters will do well? Alok Agarwal: Certainly, the GST rate rationalisation that was announced over the weekend is welcome news and it was a much needed support for stimulating the economy. Over the last few months, RBI has been taking a lot of steps on the monetary side. Earlier, the government had taken some steps through direct tax adjustments and making a lot of regulations easier as well. But what was required was the stimulus on the fiscal side to ensure that a proper stimulation of consumption happens at the broader level. The suggestion given by the government to the group of ministers to rationalise the GST rates would go a long way in ensuring that the consumption stocks and consumption companies and sectors will start doing well. Since we are talking about a very strong structural growth story, I want to understand what is the way ahead in terms of sectors which you were underweight and where now you want to raise up the bar; also sectors where you are looking at good valuations and time for a longer structural story to be in the portfolio as well. Alok Agarwal: Certain sectors have been slowing down and are still not showing too many signs of growth. Those remain underweight – the likes of IT, FMCG, and to an extent, oil and gas as well. But the sector that is the most structural sector in India has typically been the consumer discretionary. In the short term, it was showing some kind of a slowdown and now with this GST rate rationalisation, it should start showing a pickup. Reality check: Look for these 3 red flags going ahead: Sunil Subramaniam A lot of newer sectors which were not really part of the frontline indices, have been doing pretty well. The likes of electronic manufacturing, hospitals, realty, consumer durables. A lot of those segments have started coming back very well and we are quite overweight on those segments that are growing at a faster pace and have a great visibility of growth as well. Having said that, a lot of technology-oriented platform companies have started coming in, be it in the fintech space, insurance space, consumption or food delivery. A lot of those companies may not be really part of the frontline indices but they are really growing at a good pace. What is your view on the financial sector? Do you think there will be an indirect benefit to banks and even NBFCs? Alok Agarwal: The whole market has been waiting for these segments to start growing and we have seen that the credit growth and deposit growth has not really been picking up. They have been hovering somewhere around 10%, which is quite a sub-optimal number to have. Given that the rate cycle that we are in, a lot of these banks may still have some more way of NIM pressure to be seen, but yes, with consumption growth likely to pick up, that is likely to have some positive impact on deposit and credit growth as well. ADVERTISEMENT We remain selectively positive on the lender side, but within the financial space, we are more positive on the capital market plays and the whole value chain right from the exchanges to the wealth managers to the asset managers and to select brokers are all showing a very good growth and visibility of growth as well. Unlock 500+ Stock Recos on App How are you placed so far as midcap and smallcap and the broader market is concerned? What kind of narrative is going on over here now? Are these particular market caps going to lead the rally or is it the time to bank more on largecaps since we have seen a change from capex to consumption and it is good to go with the leaders? What is your take? Alok Agarwal: There are two types of narratives in the market. One says that the largecaps are at 21 times one year forward valuation compared to midcaps at 27 times and hence largecaps are cheaper, one should be in largecaps. Coming to valuations in the context of growth, the growth numbers are much higher in the slightly broader markets on the midcap space due to which on a per percentage growth basis as we call as PEG ratios, the valuations don't seem too high. ADVERTISEMENT So, instead of segmenting the markets into the large, mid, and smallcap basis, the better way would be to see what among those sectors and segments are growing better and those sectors actually currently happen to be more in the midcap space. We named a few of them, the consumer discretionary, chemicals, the agrochem as well, fertilisers, some real estate names, EMS companies, hotels, hospitals, exchanges and the whole capital marketplace as I mentioned. A lot of these names happen to be in the midcap space. The larger caps are dominated by sectors which are not growing at a great pace. So, focusing on the growth and the segments and cohort of companies that are providing that growth would fetch us better results instead of focusing too much on the market cap divide. One sector which has been in focus for the past two days is the auto sector and that has got renewed interest ever since the GST announcements were made and this sector is expected to be a major beneficiary. What is your expectation? How should one navigate the auto sector? Alok Agarwal: That is perfectly true. The auto sector is the poster boy of consumer discretionary play in India. It is one of those rare sectors where predominantly almost the whole market is in the formal zone. There is no informal zone there. The bulk of the vehicles faced around 28% GST. If a lot of them come to around 18% or so, it would be quite a relief for the consumers and the price elasticity in that segment will also be pretty high. That is expected to generate volume growth and hence that should be positive. ADVERTISEMENT We are positive both on the auto as well as on the auto ancillaries because once the volume growth picks up, the whole engine on the supply chain on the ancillary side also picks up. So, we remain positive on that side of the auto segment. What about chemicals and fertilisers? Since chemicals as a sector is also having a structural change in terms of new proposals and reforms, how are you placed in your portfolios? Alok Agarwal: Barring those which could be directly impacted by some imposition of tariffs, other than that, a lot of these chemicals have started showing some decent growth numbers coming back. We have had a period where after a very high pace of growth, a lot of these companies went into capex and hence the consolidation of earnings was underway for the last few years. But now, if we look at the last few quarters as well, the chemicals pack has started showing good double-digit growth as well. So, we are quite selectively positive on those segments where the visibility is high, especially among specialty chemicals names. (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
11-07-2025
- Business
- Time of India
Use market dips to build portfolios; these 8 sectors have high growth potential: Alok Agarwal
Alok Agarwal , Head, Quant & Fund Manager, Alchemy Capital Management , emphasizes India's strong structural growth, advising against market timing due to unpredictable corrections. He suggests that market dips present opportunities to build portfolios and advocates for continuous investment in quality stocks and promising funds. Sectors like consumer discretionary, financial services, healthcare, real estate, electronics, industrials, defence, and power are highlighted for their high growth potential. What is your view on IT and pharma in the light of what is happening in the US? We do not know whether there is a deal or not? Alok Agarwal: IT has been under the cloud of not so high growth. With the advent of AI, there is always a question of whether it will impact growth or margins, plus the implied issues in the US itself which is the main market area for IT companies. All that has put growth numbers for IT companies under cloud. Even in the last 5-10 years, the combined growth number of the IT sector was not that great while going forward, there seems to be more headwinds than tailwinds. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like War Thunder - Register now for free and play against over 75 Million real Players War Thunder Play Now Undo That is for the sector as a whole, but some select players would emerge with better outcomes because of their individual strengths. As a whole, the sector lacks the growth that can propel it further and that is why the stance is not very positive in IT. When it comes to pharma, there are multiple types; there is generic pharma from Indian companies who sell in the US. We also have CDMO players in India who play a very crucial role. We also have domestic pharma and the hospital businesses. So, we are more positive and constructive on the CDMO players and also, very positive on the domestic hospitals. Those areas are growing much better and have much better visibility as well and that is what drives our positivity out there. One thing with Alchemy Capital is the focus is on identifying overheated sectors using the PEG ratio. Another debate which the market participants have in their mind is whether to be with the benchmarks or to shift focus to the broader markets. What is your view over there? Alok Agarwal: More than focusing on whether we are with or without benchmark, as a House, we believe in GARP investing which is growth at reasonable price and growth is the first word of that acronym itself. Our country grows at around 11 odd percent in terms of nominal GDP and the corporate earnings are growing somewhere in the vicinity of 13% to 14%. We would want to look at companies that are growing faster than that growth rate. And that is the number we usually look at. So, growing at faster than the overall economy and the overall corporate earnings. Live Events You Might Also Like: Nifty 50 companies grew only 3.5% last quarter, next 450 companies grew over 20%: Alok Agarwal If you want to have growth plus good quality on both balance sheet and the management side, you have to pay some premium and that can be judged through the PEG ratios. We believe that a PEG ratio lower than the index, is a little more reasonable for the kind of premium that we pay. Currently as we see, we were talking about some of the index heavyweights in terms of sectors. They are the ones that are driving down the overall growth numbers. So, the majority of the growth is seen in some of those sectors that are not adequately represented in the benchmarks and that is why the answer may look like finding opportunities outside the benchmark. But our outlook is not to look at with or without benchmark, outlook is to look at companies that are growing much better, much faster on a more sustainable basis. How do you advise clients currently to navigate the market? Are you advising them to sit on cash because there is some uncertainty and the earning season is kicking off from Thursday? Will you advise to wait and watch till some signs emerge or there are some sectors that one can invest in right now? If yes, which can be those top three sectors? Alok Agarwal: In India, it is a structural growth story. We can never really time the markets. How would we have judged from September end- October till February – five months of correction that happened for the first time in over 25 years? At the end of February, it was so difficult to even imagine that in the next four months, markets could bounce back the way they did. The fact is that India is a structural growth story and any dip is actually an added opportunity to build up the portfolios. So, there is no point waiting. Legendary investor Charlie Munger had said that big money is not in buying or selling, it is in the waiting. So, I would say that one should be invested at most of the times and ensure that they are invested. If they are going through the funds side, then invest in the right funds; if they are investing in the stocks, it should be in those companies which are growing at a reasonable pace. As long as that is there, you are in reasonably good quality stocks, the stocks itself will ensure that things go up. You Might Also Like: Investors going back to basics; looking at manufacturers, PSUs: Pashupati Advani As for sectors that are growing much faster, we are more positive on consumer discretionary space and within that, spaces like jewellery, retail, financial services on the capital market plays or on the hospital side, the real estate side, the electronic manufacturing and the industrial side. We are also more positive on the defence and the power. These are the areas that are growing at a much faster pace that drives our positive view there. You Might Also Like: Spot government spending trends to position your portfolio: Gurmeet Chadha
Time of India
11-07-2025
- Business
- Time of India
Nifty 50 companies grew only 3.5% last quarter, next 450 companies grew over 20%: Alok Agarwal
Alok Agarwal , Head, Quant & Fund Manager, Alchemy Capital Management , highlights a divergence in market growth. Nifty 500 firms saw approximately 11% growth last quarter. However, Nifty 50 companies only grew by 3.5%. Smaller companies showed more robust growth. Index heavyweights like oil, FMCG, banking, and tech are lagging. Sectors like electronics, real estate, and building materials are performing well. These sectors are underrepresented in major indices. You must have noticed on the expiry day that there was not much movement in the Nifty. I do not know what will happen in the second half of the market, but most of the investors remain confused because of what is happening globally and also the kind of volatile environment that has been there. On one day, the market is in green, the next day, it is in the red territory. There is limited movement in the market currently. What is your assessment of Sensex and Nifty and also is there any specific churning that you are seeing currently? Alok Agarwal: As you rightly pointed the volatility has definitely gone up in the last few weeks and months, but frankly as investors, given the kind of events these markets have witnessed in the last few months, we cannot really be complaining. The previous quarter started off with the tariff announcements in the US; then came the fatal attack in Pahalgam leading to an almost war-like situation between India and Pakistan. Then came the Iran-Israel conflict. So many things happened in that quarter and the markets, despite some volatility, kept moving upwards. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Bank-Repossessed Cars in the Philippines at Bargain Prices! SUV Deals | Search Ads Search Now Undo As investors, it is difficult to see that kind of bounce back and resilience in the markets. Fundamentally, as well, the macro numbers have been improving – be it on the actions taken by the RBI wherein they have cut the repo rates, the CRR, ensured that the system liquidity went from a deficit to a surplus, and also the capex numbers being undertaken by the government and control on the fiscal discipline. All these factors are coming together and now GST collection numbers have improved and the corporate earnings numbers are also improving. So, things are shaping up pretty well. Yes, we are living in a world with a lot of things happening both globally and locally and hence slightly higher volatility is the price that one is paying. But markets on the whole look resilient and reasonably strong for that kind of situation. I agree that we cannot complain more and the domestic markets are behaving very maturely to all of the global scenarios and contingent uncertainties that are coming in, but we cannot negate the fact that markets are in a pause mode at present and are looking for direction. Will the uncertainties weigh more or will the earnings season give the direction which the market needs and if yes, what are the sectors one should watch out for? The earning season starts with an IT major posting its results today. Which sectors are on your radar? Alok Agarwal: We are very interestingly positioned. Despite the global and local developments, we are more constructive. But the interesting development that is happening in the markets is that even if we look at the previous quarter's numbers, the Nifty 500 companies grew in the vicinity of 11 odd percent, but the Nifty 50 companies grew at only 3.5%. The bottom 450 companies actually grew at around 20% plus. Live Events You Might Also Like: Get into mid and smallcaps with a slightly longer-term horizon compared to largecaps: Harsha Upadhyaya What I am trying to imply is that some of the index heavyweight sectors are the ones that are seeing the slowdown in the earnings growth and that is bringing down the aggregate numbers. Some of the sectors that are growing better, are not adequately represented in the indices, the electronic manufacturing companies, the companies on some of the real estate, some of the capital market plays, some of the NBFCs on the non- lending side as well as the lending space. Also companies in building material space like cement, and hospitals and to an extent on the tourism side, are not adequately represented in the main indices but are showing handsome growth. On the other hand, index heavyweights, the likes of oil and gas, FMCG, banking, and technology companies are not growing at a faster pace. You Might Also Like: Betting on consumption? Put 70-75% in discretionary & 20-30% in staples: Gurmeet Chadha Investors going back to basics; looking at manufacturers, PSUs: Pashupati Advani
Time of India
25-06-2025
- Business
- Time of India
ETMarkets Smart Talk: Sectors to watch in 2H2025 - Defence, Real Estate, Aviation, says Alok Agarwal
In this edition of ETMarkets Smart Talk, we catch up with Alok Agarwal , Head – Quant and Fund Manager at Alchemy Capital Management, to discuss the sectoral outlook for the second half of 2025. Amid improving macro stability, robust earnings momentum, and supportive monetary policy, Agarwal believes India is entering a favourable phase for select high-growth sectors . by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Join new Free to Play WWII MMO War Thunder War Thunder Play Now Undo He highlights defence , real estate , aviation , electronic manufacturing, and capital markets as the key themes likely to outperform in 2H2025. With nominal GDP growth expected to remain in double digits and structural reforms in play, these sectors are well-positioned to deliver earnings well above market averages. Edited Excerpts – Q) June is turning out to be a volatile month for D-Street. How is 2H2025 likely to pan out for Indian markets? Do you think most of the negatives are behind us? Live Events A) June 2025 has been a volatile month, with the Indian stock market experiencing significant fluctuations, led by the global uncertainties, such as the Iran-Israel war, the US trade policies and inflation fears. The FPI flows have been marginally negative too. However, in our view, the outlook for the second half of 2025 (2H2025) leans towards recovery. The recently concluded Q4FY25 earnings season was fairly strong with Nifty 500 reporting an aggregate growth of over 11% YoY, and Nifty 500 ex-Nifty 50 reporting growth of over 20% YoY. Corporate earnings momentum remains intact, macro stability is improving, and liquidity conditions are supportive. The corporate earnings to GDP ratio is now at a 17-year high, the GST collection growth in May 2025 was the highest since October 2022, the inflation is at over a six-year low, and the RBI has been proactively supportive of growth and liquidity. The RBI's 50 basis points (bps) repo rate cut on June 6, 2025, to 5.5% is a significant catalyst, reducing borrowing costs and stimulating economic activity. Plus, the CRR (Cash Reserve Ratio) has been cut to a record low level of 3.0%. In our view, the bulk of the negatives are priced in. However, we would be closely following the Iran-Israel war too for any unexpected escalation and its impact on crude oil. Q) What does 50 bps cut mean for equity and bond markets? What should be an asset allocation strategy? A) The RBI's 50 bps repo rate cut is a pivotal move to support growth amid low inflation (2.8% in May 2025 – lowest since February 2019). Falling inflation and rates are positive for both the equity and bond markets. For equity markets, lower interest rates reduce borrowing costs, encouraging investment and consumption, which can boost corporate earnings and stock prices. Sectors like real estate, infrastructure, and consumer durables are direct beneficiaries of the rate cut, reducing funding costs for banks and stimulating lending. Moreover, falling rates are also positive for valuations. For bond markets, the rate cut leads to higher bond prices and lower yields, making bonds more attractive for income-seeking investors. The accompanying 100 bps cut in the Cash Reserve Ratio (CRR) to 3%, releasing ₹2.5 lakh crore in liquidity further supports bond markets. The policy's stance has shifted to 'neutral,' suggesting the easing cycle may pause, however, the immediate impact is positive for both asset classes. While we do see a longer runway of growth for equity and limited room for further rate cuts, yet for asset allocation, individual risk-reward requirements could be quite different and hence one should reach out to their investment/financial advisors. At Alchemy, we are positive on equity and do expect a prolonged period of double-digit nominal GDP growth in India. Q) What is your take on Q4 earnings from India Inc.? Any hits and misses which you tracked in the results? A) The aggregate of Nifty 500 Index companies showed a YoY growth of 11.9% in the net profits, higher than estimates of just touching double digits. The break-up is even more interesting: Agencies As evident from the above table, the Nifty 50 earnings were a drag on the overall numbers. The broader markets, including the Nifty Next 50, grew at a healthy pace with operating profit growing at 14% YoY and net profit at over 22% YoY. Index heavyweight sectors saw sluggish growth. Oil & gas -4% YoY, private banks -3% YoY, consumer 4% YoY, technology 3% YoY. However, with the economic numbers rebounding, the GST collections improving, and multi-year low inflation and rates, the outlook is much brighter. Q) Nifty Bank hit a record high in June which suggests that there is a lot of interest in banking stocks. What is fuelling the rally in financials – is it the rate cut by RBI? A) Falling inflation and hence falling interest rates are good for lenders as they reduce funding costs and stimulate lending. Healthy Q4FY25 earnings, with banks performing well despite margin pressures, also contributed to the Nifty Bank's rally. The sector's resilience, supported by the RBI's easing cycle, reflects investor confidence. The protected margins and strong control over credit costs are aiding the strength. With inflation at over six-year lows and CRR at record low, there is limited room for more easing via rates and CRR by the RBI. However, the bank loan growth has fallen to a three-year low of 9.8% YoY (for the fortnight ended May 23, 2025) and deposit growth is also struggling near a two-year low of 10%. When the RBI cut rates, it was a choice between growth and margins for the banks. Few banks chose to protect margins and cut deposit rates, while others have maintained. It will be interesting to see who wins the battle to mobilise deposits. Q) Which sectors are likely to remain in limelight in the 2H2025? A) For 2H2025, several sectors are expected to remain in the limelight, driven by India's structural growth story and policy support. The sectors that have been growing well include Industrials (led by defence, power), electronic manufacturing companies, capital market plays (exchanges, intermediaries, brokers, AMCs, wealth managers), hospitals, hotels, aviation, real estate and cement. In a scenario where nominal GDP is expected to be just over double digits, and top index heavy weight sectors' profit growth is struggling to match the nominal GDP growth, the above-mentioned sectors have been reporting profit growth well in excess of nominal GDP growth and more importantly, consensus estimates point towards continued higher growth. Q) The tonality keeps changing from the US when it comes to 'Trade Talks'. Do you think it is still a relevant headwind for equity markets across the globe? A) US trade talks, particularly with China, have seen fluctuations, with recent discussions in London in early June 2025 resulting in a framework agreement. The deal aims to ease tariffs and export controls, but its durability is uncertain, offering little resolution to deeper issues. Market reactions have been cautious, with mixed global sentiments, reflecting ongoing uncertainty. For India, while direct impact is limited, global economic conditions and FPI flows are affected, keeping trade talks a relevant headwind, though the impact value has substantially reduced. Q) China equity markets are up in double digits while we have underperformed most EM peers. Does it make a case for global diversification? A) In USD terms, China's Shanghai Composite Index has delivered 2.7% returns so far this year, compared Nifty 50 Index's 4.1%. While India's index corrected more sharply earlier in the year, the recovery has been sharper too. India has rare combination of: Falling dependency ratio for the last 30 years and likely to continue for another 20 years Double-digit nominal GDP growth Double-digit corporate earnings growth Double-digit corporate ROE Over 500 companies with $1bn plus market cap Diversified market with good depth across sectors Per capita income at inflexion point of $2500 Shorter term, notwithstanding, India is set to outperform the world and its neighbours, in our view. While diversification always makes sense, the better diversification would be an EM (emerging market) basket as compared to a DM (developed market) basket. Q) Which sector(s) is/are looking overheated and why? A) Overheated is a relative term. A sector that grows at a fast pace or expected to grow at a fast pace cannot be really compared with the one which is struggling for growth. Same goes with valuations – PEG (price/earnings to growth) ratios throw more light on reasonableness of valuation as compared to PE alone. BSE 500 Index trades at a one-year forward PE of 22x and next two years earnings growth is estimated to be at 10%. This translates into a PEG ratio of 2.2x. As a house, our investment framework is built around GARP methodology, which favours Growth at Reasonable Price. Ideally, if the growth is above market and the PEG is below market, its preferred. But the sectors that have run up, where estimated growth could be lower than market growth and PEG is quite high compared to market – are the sectors which we find overheated. In our view, these include oil & gas, FMCG, IT and select banks.
Economic Times
25-06-2025
- Business
- Economic Times
ETMarkets Smart Talk: Sectors to watch in 2H2025 - Defence, Real Estate, Aviation, says Alok Agarwal
In this edition of ETMarkets Smart Talk, we catch up with Alok Agarwal, Head – Quant and Fund Manager at Alchemy Capital Management, to discuss the sectoral outlook for the second half of 2025. ADVERTISEMENT Amid improving macro stability, robust earnings momentum, and supportive monetary policy, Agarwal believes India is entering a favourable phase for select high-growth sectors. He highlights defence, real estate, aviation, electronic manufacturing, and capital markets as the key themes likely to outperform in 2H2025. With nominal GDP growth expected to remain in double digits and structural reforms in play, these sectors are well-positioned to deliver earnings well above market averages. Edited Excerpts – Q) June is turning out to be a volatile month for D-Street. How is 2H2025 likely to pan out for Indian markets? Do you think most of the negatives are behind us? A) June 2025 has been a volatile month, with the Indian stock market experiencing significant fluctuations, led by the global uncertainties, such as the Iran-Israel war, the US trade policies and inflation fears. The FPI flows have been marginally negative too. ADVERTISEMENT However, in our view, the outlook for the second half of 2025 (2H2025) leans towards recovery. The recently concluded Q4FY25 earnings season was fairly strong with Nifty 500 reporting an aggregate growth of over 11% YoY, and Nifty 500 ex-Nifty 50 reporting growth of over 20% earnings momentum remains intact, macro stability is improving, and liquidity conditions are supportive. ADVERTISEMENT The corporate earnings to GDP ratio is now at a 17-year high, the GST collection growth in May 2025 was the highest since October 2022, the inflation is at over a six-year low, and the RBI has been proactively supportive of growth and RBI's 50 basis points (bps) repo rate cut on June 6, 2025, to 5.5% is a significant catalyst, reducing borrowing costs and stimulating economic activity. Plus, the CRR (Cash Reserve Ratio) has been cut to a record low level of 3.0%. ADVERTISEMENT In our view, the bulk of the negatives are priced in. However, we would be closely following the Iran-Israel war too for any unexpected escalation and its impact on crude oil. Q) What does 50 bps cut mean for equity and bond markets? What should be an asset allocation strategy? A) The RBI's 50 bps repo rate cut is a pivotal move to support growth amid low inflation (2.8% in May 2025 – lowest since February 2019). ADVERTISEMENT Falling inflation and rates are positive for both the equity and bond markets. For equity markets, lower interest rates reduce borrowing costs, encouraging investment and consumption, which can boost corporate earnings and stock like real estate, infrastructure, and consumer durables are direct beneficiaries of the rate cut, reducing funding costs for banks and stimulating lending. Moreover, falling rates are also positive for bond markets, the rate cut leads to higher bond prices and lower yields, making bonds more attractive for income-seeking investors. The accompanying 100 bps cut in the Cash Reserve Ratio (CRR) to 3%, releasing ₹2.5 lakh crore in liquidity further supports bond policy's stance has shifted to 'neutral,' suggesting the easing cycle may pause, however, the immediate impact is positive for both asset we do see a longer runway of growth for equity and limited room for further rate cuts, yet for asset allocation, individual risk-reward requirements could be quite different and hence one should reach out to their investment/financial Alchemy, we are positive on equity and do expect a prolonged period of double-digit nominal GDP growth in India. Q) What is your take on Q4 earnings from India Inc.? Any hits and misses which you tracked in the results? A) The aggregate of Nifty 500 Index companies showed a YoY growth of 11.9% in the net profits, higher than estimates of just touching double digits. The break-up is even more interesting:As evident from the above table, the Nifty 50 earnings were a drag on the overall numbers. The broader markets, including the Nifty Next 50, grew at a healthy pace with operating profit growing at 14% YoY and net profit at over 22% heavyweight sectors saw sluggish growth. Oil & gas -4% YoY, private banks -3% YoY, consumer 4% YoY, technology 3% YoY. However, with the economic numbers rebounding, the GST collections improving, and multi-year low inflation and rates, the outlook is much brighter. Q) Nifty Bank hit a record high in June which suggests that there is a lot of interest in banking stocks. What is fuelling the rally in financials – is it the rate cut by RBI? A) Falling inflation and hence falling interest rates are good for lenders as they reduce funding costs and stimulate lending. Healthy Q4FY25 earnings, with banks performing well despite margin pressures, also contributed to the Nifty Bank's sector's resilience, supported by the RBI's easing cycle, reflects investor confidence. The protected margins and strong control over credit costs are aiding the inflation at over six-year lows and CRR at record low, there is limited room for more easing via rates and CRR by the the bank loan growth has fallen to a three-year low of 9.8% YoY (for the fortnight ended May 23, 2025) and deposit growth is also struggling near a two-year low of 10%. When the RBI cut rates, it was a choice between growth and margins for the banks chose to protect margins and cut deposit rates, while others have maintained. It will be interesting to see who wins the battle to mobilise deposits. Q) Which sectors are likely to remain in limelight in the 2H2025? A) For 2H2025, several sectors are expected to remain in the limelight, driven by India's structural growth story and policy support. The sectors that have been growing well include Industrials (led by defence, power), electronic manufacturing companies, capital market plays (exchanges, intermediaries, brokers, AMCs, wealth managers), hospitals, hotels, aviation, real estate and cement. In a scenario where nominal GDP is expected to be just over double digits, and top index heavy weight sectors' profit growth is struggling to match the nominal GDP growth, the above-mentioned sectors have been reporting profit growth well in excess of nominal GDP growth and more importantly, consensus estimates point towards continued higher growth. Q) The tonality keeps changing from the US when it comes to 'Trade Talks'. Do you think it is still a relevant headwind for equity markets across the globe? A) US trade talks, particularly with China, have seen fluctuations, with recent discussions in London in early June 2025 resulting in a framework deal aims to ease tariffs and export controls, but its durability is uncertain, offering little resolution to deeper issues. Market reactions have been cautious, with mixed global sentiments, reflecting ongoing India, while direct impact is limited, global economic conditions and FPI flows are affected, keeping trade talks a relevant headwind, though the impact value has substantially reduced. Q) China equity markets are up in double digits while we have underperformed most EM peers. Does it make a case for global diversification? A) In USD terms, China's Shanghai Composite Index has delivered 2.7% returns so far this year, compared Nifty 50 Index's 4.1%. While India's index corrected more sharply earlier in the year, the recovery has been sharper has rare combination of:Falling dependency ratio for the last 30 years and likely to continue for another 20 yearsDouble-digit nominal GDP growthDouble-digit corporate earnings growthDouble-digit corporate ROEOver 500 companies with $1bn plus market capDiversified market with good depth across sectorsPer capita income at inflexion point of $2500Shorter term, notwithstanding, India is set to outperform the world and its neighbours, in our diversification always makes sense, the better diversification would be an EM (emerging market) basket as compared to a DM (developed market) basket. Q) Which sector(s) is/are looking overheated and why? A) Overheated is a relative term. A sector that grows at a fast pace or expected to grow at a fast pace cannot be really compared with the one which is struggling for goes with valuations – PEG (price/earnings to growth) ratios throw more light on reasonableness of valuation as compared to PE 500 Index trades at a one-year forward PE of 22x and next two years earnings growth is estimated to be at 10%. This translates into a PEG ratio of 2.2x. As a house, our investment framework is built around GARP methodology, which favours Growth at Reasonable Price. Ideally, if the growth is above market and the PEG is below market, its preferred. But the sectors that have run up, where estimated growth could be lower than market growth and PEG is quite high compared to market – are the sectors which we find overheated. In our view, these include oil & gas, FMCG, IT and select banks. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
