ETMarkets Smart Talk: The road ahead for Indian markets – Pradeep Gupta talks sector focus and investor opportunities in 2025

Thanks for taking the time out. Indian market started the month of February on a volatile note. We saw Union Budget, Trade War fears, strength in the Dollar index, and a rate cut by the RBI. How are you reading this?
The current market dynamics reflect multiple converging factors, with Nifty 50 down 3% in the current calendar year.

While the Union Budget maintained fiscal prudence and the RBI’s accommodative stance with a rate cut signals support for growth, global factors like trade war concerns and dollar strength are creating headwinds.

We see Indian markets have shown improved resilience to such volatility, with faster recovery patterns from corrections. However, the immediate term may remain choppy as markets digest these multiple triggers.

FIIs have pulled out more than Rs 9000 cr so far in the month of February. How are you reading this? Is it because of strength in the US dollar and their own equity markets doing well or is it a Indian specific issue?
The substantial FII selling in early 2025, with outflows reaching Rs 90,993 crore through 7th Feb’25 and net selling in 26 out of 28 sessions, reflects a complex interplay of factors rather than India-specific concerns.

The persistent strength in the dollar index and elevated US bond yields continue to be primary drivers of FII selling, alongside broader market valuations that remain relatively high in certain segments.

While global macro concerns including potential trade curbs and inflation risks are weighing on sentiment, India remains well-insulated through strong domestic measures and the recent RBI rate cut supporting domestic investment and consumption.

Importantly, the institutional ownership landscape has evolved significantly – DIIs now hold Rs 73.5 lakh crore compared to FII holdings of Rs 74.9 lakh crore, a dramatic shift from 2015 when FIIs held more than twice the DII holdings. This growing domestic institutional strength provides crucial market stability.

After the recent correction, large-cap valuations have become particularly attractive, and India continues to offer one of the best risk-reward ratios among emerging markets. The BJP’s recent electoral success in Delhi could serve as an additional positive sentiment trigger for renewed FII interest.

The current market dynamics suggest this could present an opportune entry point for investors, particularly in large-caps where valuations have become more reasonable.

With India’s strong fundamentals intact and the growing strength of domestic institutional investors providing a robust counterbalance to FII flows, the market demonstrates improved structural resilience compared to historical patterns.

While FIIs might continue their selling streak in the near term, they are unlikely to remain underweight on India for an extended period given its compelling long-term growth perspective.

Do you think Bitcoin will become a reality of Indian investors’ portfolio as well in near future amid Trump’s crypto policies?
While cryptocurrency adoption is an evolving space, it’s premature to make definitive predictions about its role in Indian investors’ portfolios.

The focus should remain on asset classes where India has shown strong risk-adjusted returns – equities have delivered 12.6% CAGR versus inflation at 5.8% (2012-2024).

Post Budget 2025 where will the smart money move? Will consumption-led play become the new hot spot of investments from capex led plays? What are your views?
The Budget 2025-26 presents a more robust capex story than initially perceived by the markets. While the budgetary capex announced is Rs 11.2 trillion, the effective capex – which includes grants to states and IEBR (Internal and Extra Budgetary Resources) – amounts to Rs 19 trillion for FY26, reflecting a substantial year-on-year growth of approximately 17%. This growth trajectory is particularly credible given the government’s strong track record of achieving around 92% of its targeted capex historically.

Implementation data reinforces this optimism – spending on roads and railways remains robust at 85% and 76% respectively of budgeted amounts through December 2024.

Transfers to states have also gained momentum, rising to approximately 69% by December 2024 from 58% earlier in the fiscal year.

With national elections and potential weather disruptions like El Niño largely behind us, achieving the stated capex targets appears increasingly realistic.

The recent market correction in capex-related sectors appears unwarranted given these fundamentals.

The government’s emphasis on public capex, coupled with a renewed framework for Public-Private Partnership (PPP), is likely to catalyze the private capex cycle – particularly benefiting infrastructure, capital goods and industrial companies.

Overall, which sectors are likely to be in focus in 2025?
Infrastructure and capital goods, Manufacturing, Renewable energy, Financial services, Consumer discretionary look favourable.

How are you looking at the whole energy/renewable space especially the recent run up seen in the prices? We saw govt announcing few measures in the Budget 2025?
The recent budget’s reforms, particularly in nuclear energy privatization, signal strong government commitment to the sector. This, combined with global energy transition trends, makes the renewable space structurally attractive for long-term investors.

Do you see private capex picking up post Budget and reduced rates?
The private capex cycle appears poised for acceleration, supported by multiple favourable factors. The government’s substantial commitment to public capex – with real/effective capex reaching Rs 19 trillion for FY26 (a 17% year-on-year growth) – creates a strong foundation for private sector participation. This is particularly significant when viewed alongside the reduced interest rates.

Several key factors support this positive outlook:

Enhanced PPP Framework: The budget introduces a renewed framework for Public-Private Partnership, which should catalyse private sector involvement. This structural change makes the investment climate more conducive for private players.

Strong Implementation Track Record: The government’s consistent achievement of about 92% of its total capex targets through both Central and state-level spending builds confidence in the execution capability. Current year’s spending patterns are encouraging – with roads and railways showing robust implementation at 85% and 76% of budgeted amounts respectively.

Improved Operating Environment: With national elections and potential weather disruptions (such as El Niño) largely behind, the business environment is becoming more predictable, which typically encourages private investment decisions.

Sector-Specific Momentum: The robust spending in key sectors like roads (85.4% of budget), railways (76%), and housing and urban affairs (79.3%) creates significant downstream opportunities for private sector participation.

The combination of lower interest rates, strong public capex commitment, and improved implementation framework suggests that private capex is likely to see meaningful acceleration in the coming quarters. The recent correction in capital goods and infrastructure stocks could actually present attractive entry points for investors looking to capitalize on this trend.

2025 might turn out to be a year for long-term investors. The year might remain volatile and could give plenty of entry opportunities. What are your views?
The year is likely to present opportunities for long-term investors amid volatility. The market has demonstrated improved resilience to corrections post-2014, with faster recovery patterns. Historical data shows corrections typically range between 10-17% compared to earlier deeper corrections.

Where should investors focus more on – hunting for multibaggers or protecting capital in 2025?
In the current market environment of 2025, investors should prioritize a balanced approach that emphasizes both quality and valuation comfort.

With Indian equities currently undervalued by 6-12% after the recent correction, the focus should be on identifying fundamentally strong companies rather than speculating on high-risk opportunities.

Sectors aligned with the government’s Rs 19 trillion capex push and structural reforms offer compelling opportunities, particularly in infrastructure, manufacturing, and digital transformation.

The emphasis should be on companies with strong earnings visibility, robust balance sheets, and proven execution capabilities.

The improved market resilience post-2014, with faster recovery patterns from corrections, suggests that systematic accumulation in quality names during market dips could offer better risk-adjusted returns than purely hunting for multibaggers.

In essence, while capital protection is crucial in 2025, and a good way to look at risk management, where risk is an unavoidable aspect of my portfolio, is to look at Asset allocation strategy.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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