ETMarkets Smart Talk: Agri, consumer durable & insurance could be dark horse of FY25: Kush Gupta

In an interview with ETMarkets, Gupta said: “The new government would enhance capital expenditure, above normal monsoon are expected to support agriculture, Crude oil prices have come down which should support inflation,” Edited excerpts:

With election uncertainty now over – where are markets headed?
Elections in the past have always led to sharp movements pre and post-event, but history has shown that the markets finally stabilize one to six months post-event.Amongst various factors that D-street evaluates, political stability is the most desired one. Nobody wants a policy paralysis. I think the election result has created a lot of anxiety amongst investors.

There was a lot of hype around results and expectations were very high, exit polls made it worse and then the Sensex came crashing down along with the expectations.

Primary fear is that a coalition government will make it difficult to pass reforms, India has been on a runway for 3-4 years now and a sudden brake will undo all the efforts.

Another factor is that post COVID we saw a massive increase in domestic participation, these new investors have enjoyed high returns that exceeded their targets and I think psychologically it has become the norm.

Most of them have not seen a bear market or a fall like the global financial crisis of 2008 or even the fall during COVID.

It’s their first election cycle, so fearful reaction towards the unexpected is natural. I think as the new government will get formed, parliament will resume, normality will return along with the D-street confidence.

The political scenario has changed. Will this also change any target you have on D-Street?
Over the past five elections dating back to 1999, Indian equity markets have always given positive returns six months after the elections.

This includes coalition governments being formed and outcomes less favourable than the current one. I think there will be a continuous focus on infrastructure, Make in India, energy self-reliance, defence, etc.

However, increased focus should also be seen in mass developmental projects like employment, rural income, water for all, electricity for all, and poverty eradication.

While the political scenario may have changed, our target for Indian markets have not changed, at least not in the current scenario. We have seen coalition governments in the past working well and resulting in economic growth.

India growth story remains strong, our foreign exchange remains at a solid $ 650 Billion, SIPs are clocking Rs. 20,000 Crore a month, GDP growth is at 8.20%.

We are not worrying as of now to change our long-term view on the Indian stock market.

How are FIIs likely to approach D-Street amid political uncertainty? The valuation premium was on stable fundamentals but the new govt might come with a different agenda. What are your views?
If we see the FII data for the past 3 years, since 2022 they have not invested any large sums of money in the Indian markets.

In May itself, just before the elections, we saw an exodus of $3.5 Billion. Foreign investors deem Indian markets to be expensive and are not always a fan of rupee depreciation.

I have a contra view of this election result on FII behaviour, with some correction in the markets, we could see foreign investments coming back.

While stable fundamentals command a high premium, FIIs never really accepted that or invested on higher premiums.

Apart from the political landscape, Indian companies are still very profitable, there is a large middle class that will continue to push consumption, a lot of room for growth in almost every sector.

These are factors that will continue to attract foreign investments especially when other developing nations such as China, Russia or Brazil have struggles of their own.

With corrected valuations we could come back on their radar Indian equities can become lucrative again for global investors.

Which could turn out to be a dark horse in FY25?
I think certain sectors that could surprise us will be Agriculture, Consumer Durables, Insurance and Services.

Baseline economy is strong, India is a growing country with growing needs, certain sectors will remain resilient inspite of the temporary political uncertainty and anxiety amongst investors.

The new government would enhance capital expenditure, above normal monsoon are expected to support agriculture, Crude oil prices have come down which should support inflation.

There are multiple silver linings which could be absorbed by various sectors, and they will come out shining in FY 25.

Do you think there is going to be a complete reset of the policy initiatives?
Absolutely not, while the popular sentiment is that BJP failed in the elections one has to consider some important factors. Any administration to get elected for the third consecutive time is almost unheard of in any part of the world.

Election result is surprising because our expectations and media hype was too much, it is not surprising if you look at the political landscape.

There are coalition governments that work very well, push policies and reforms and make change. I don’t see why it would be any different this time.

We will witness de-concentration of power from BJP, there will be collective decision making but to assume that decisions won’t be made is pre-mature.

To think that brakes will be pulled on the existing policies that are working in favour of the country, I doubt it.

Is there a need to shuffle the portfolio amid political/reform uncertainty?
Past decade, we have seen certain sectors being the flavour of the economy. Infra, Auto, PSUs, and Defence have done very well due to the incumbent government’s focus.

With a change on the political front, one can expect that some of these sectors may not enjoy the same growth. I think one can be a little cautious and exit from those that have seen substantial returns.

If there is uncertainty then it is always advisable to allocate funds to defensive sectors such as Consumer Staples, Utilities and Health.

It is not to say we won’t see infra growth in the country, but one can take a cautious stance. Analyse the new administration’s policy, their focus and then take sector specific bets.

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