Aniket PujariExpert View on Markets: Divam Sharma, co-founder and fund manager at Green Portfolio PMS, believes the Indian stock market is poised to rebound. In an interview with Mint, Sharma pointed out that, historically, markets recover three to six months before the economy. Therefore, he sees this as a good time to increase equity allocation rather than stay on the sidelines.
Discussing sectors, he highlighted mid-and small-cap stocks in defence, renewables, and manufacturing as potential long-term bets.
Here are edited excerpts from the interview:
1. Is the worst behind for the Indian stock market?
The Indian stock market has taken a hit since September 2024, with Nifty 50 and Sensex down 14 per cent and mid and small-cap indices falling 17-20 per cent.
The key reason behind this is that foreign investors have pulled $29 billion from Indian equities since October, wiping out $1 trillion in market value. While sentiment remains weak, history suggests markets tend to rebound after major sell-offs.
What drives this turnaround is corporate earnings recovery, improving foreign investor sentiment, and RBI’s expected rate cut in April 2025, which could all help shift momentum.
India’s strong domestic liquidity has been a buffer in volatile times, and beaten-down mid and small-cap stocks may offer great long-term value. Of course, global uncertainties and policy risks remain, but if history is any guide, this correction may be setting the stage for a rebound.
How do you see Trump’s policies impacting domestic markets?
US President Donald Trump’s latest tariff policies are shaking up global markets, and India isn’t spared.
With the US imposing tariffs on China, Canada, and Mexico, concerns about a trade war are driving volatility, leading foreign investors to pull money from emerging markets like India.
Since India has one of the highest tariff rates, the US is set to impose reciprocal tariffs starting April 2, directly impacting automobiles, pharmaceuticals, textiles, and steel.
Higher costs could hurt corporate earnings and slow economic growth, which is a huge concern right now.
However, diplomatic talks are ongoing, and Trump has hinted that India could avoid harsher tariffs if it lowers its own. Even Prime Minister Narendra Modi has signalled a willingness to negotiate, which could ease tensions.
For now, uncertainty is already shaking Indian markets, with the Nifty 50 fluctuating as investors react. Expect volatility until a resolution emerges, but keep an eye on opportunities once the situation stabilises.
What are the key catalysts that could drive the market in the coming months?
The Indian stock market is at a turning point, and several key catalysts could shape its direction in the coming months.
The RBI’s recent 25 bps rate cut, with another expected in April 2025, could boost corporate growth and consumer spending by making borrowing cheaper.
Foreign investor sentiment is another big factor. FPIs (foreign portfolio investors) have withdrawn $29 billion since October 2024, pressuring equities, but India’s economy remains strong, supported by agricultural growth and rising consumption.
If global bond yields decline and major central banks ease rates, foreign money could return to Indian markets.
Corporate earnings will also be crucial. Investor confidence could rebound if IT, financials, and consumer-driven sectors report strong Q4 results.
IT stocks like HCL Tech, TCS, Wipro, and Infosys have already gained 2 per cent recently, hinting at early optimism.
With government infrastructure investments and potential Fed rate cuts, markets could be gearing up for recovery.
Given the current market conditions, what should be the ideal equity investment strategy?
The Indian stock market has been volatile, with Nifty 50 down 14 per cent since September 2024 and foreign investors pulling out $28 billion from equities. While sentiment remains weak, most of the damage may already be priced in.
Historically, markets recover three to six months before the economy, making this a good time to increase equity allocation rather than sit on the sidelines.
Small and mid-cap stocks have taken bigger hits than large caps, creating attractive valuation opportunities.
A proxy-play strategy is key—instead of investing in overvalued stocks, focus on supporting industries.
For EV growth, consider battery makers, charging infrastructure, or auto component suppliers rather than automakers. In defence, look beyond high P/E giants and target precision engineering and electronics suppliers.
With domestic liquidity strong and valuations stabilising, smart investors should ride the recovery with well-researched proxy plays, think long-term, and position portfolios for controlled risk and high returns.
What are your expectations for Q4 earnings? Can we anticipate signs of a revival?
Q4FY25 earnings are expected to be mixed, requiring investors to stay cautious yet strategic.
On the positive side, according to ICRA, India Inc. is projected to see 7-8 percent revenue growth, driven by a revival in rural demand and increased government spending.
A strong Kharif harvest and favourable Rabi season outlook have boosted consumer-driven sectors, but corporate earnings growth remains weak.
India’s GDP grew by 6.2 per cent in Q3FY25, missing the RBI’s projection of 6.8 per cent, indicating lingering economic challenges.
Infrastructure, auto, and consumer goods sectors have gained from government policies, but export-heavy industries like IT continue to struggle with weak global demand and high borrowing costs.
Meanwhile, foreign investors have pulled out $25 billion since September 2024, adding market pressure. Despite challenges, opportunities remain.
Mid and small-cap stocks in defence, renewables, and manufacturing could be strong long-term bets. Investors should focus on fundamentals and stay patient as earnings stabilise.
Which sectors are poised to outperform and generate alpha over the next one to two years?
Investing smartly in 2025 and beyond means looking beyond the obvious and tapping into sectors poised for strong growth while managing risk.
Instead of chasing high-valuation industry leaders, a proxy play strategy focusing on supporting industries offers a smarter way to gain exposure.
The EV sector is booming, with India’s market projected to hit $113.99 billion by 2029, growing at 66.52 per cent CAGR.
Instead of automakers, investors should look at battery technology, charging infrastructure, and component suppliers.
Similarly, renewable energy investments are set to grow 500 per cent by 2030, making solar panel and wind turbine suppliers great alternatives.
Healthcare and pharmaceuticals, projected to reach $320 billion by FY2028, present strong opportunities in medical equipment and healthcare IT.
Meanwhile, AI, cloud computing, and data analytics are gaining traction.
FMCG, expected to hit $220 billion by 2025, remains resilient, with packaging and logistics stocks offering risk-adjusted returns.
By targeting mid and small-cap stocks in these sectors, investors can capitalize on emerging trends while minimizing direct exposure risks.
When do you foresee a reversal in foreign portfolio investment (FPI) trends?
Foreign investors have been pulling out aggressively, with $28 billion in outflows from Indian equities between October 2024 and March 2025, dragging the Nifty 50 down by 13 per cent from its peak. IT, financials, FMCG, auto, oil and gas, and power stocks have taken the biggest hit.
It’s been a tough ride, but this trend won’t last forever. Despite the sell-off, India’s economic fundamentals remain solid.
The RBI has highlighted improving rural demand and rising consumption, which could stabilize market sentiment. A corporate earnings rebound could be the spark that brings foreign money back.
Analysts expect FPI inflows of $20-25 billion in FY2025, provided earnings improve and global risk appetite returns.
If global liquidity conditions ease, expect FPIs to return, particularly in mid-cap and infrastructure stocks. Short-term volatility remains, but a turnaround could be closer than expected.
How do you interpret the US Federal Reserve’s recent policy decisions? Should investors brace for a prolonged period of elevated interest rates?
The Federal Reserve’s decision to hold rates steady at 4.25 per cent to 4.5 per cent signals a cautious approach amid rising inflation projected at 2.7 per cent by year-end and slower GDP growth.
With global trade tensions and tariffs adding uncertainty, the Fed seems in no rush to ease monetary policy.
For investors, this means higher borrowing costs, restrained corporate spending, and continued market volatility.
Foreign investors may continue shifting capital away from emerging markets like India toward safer US assets with higher yields.
However, there’s still a chance for relief—the Fed has hinted at possible rate cuts later in the year if inflation moderates and growth stabilises.
Until then, investors should prepare for prolonged elevated rates. Financials, infrastructure, and high-dividend stocks could provide stability in this environment.
Should we expect a significant rate cut from the RBI in this cycle?
The RBI already cut rates by 25 bps in February 2025, bringing the repo rate down to 6.25 per cent. With GDP growth slowing and inflation cooling to 3.61 per cent, another 25 bps cut in April looks likely.
The central bank seems to be taking a measured easing stance to support demand and liquidity, but don’t expect aggressive cuts just yet.
The US Fed holding rates steady and global trade uncertainties from new tariffs also weigh on the RBI’s decision-making. While a drastic cut over 50 bps is unlikely, markets are pricing in a total of 50 bps cuts in 2025, depending on how inflation and growth play out.
Lower rates are positive for investors, boosting equity markets and credit-driven sectors like banking, real estate, and infrastructure, but global risks remain a factor.
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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.
