Equity investors, who not so long ago were rejoicing markets hitting new peaks, have seen their returns erode over the past three to four months. Amid huge outflows from foreign institutional investors, weakening domestic economic growth and lacklustre earnings, benchmark largecap indices have corrected 12 per cent since their September 2024 lifetime highs. The BSE smallcap index is down over 18 per cent from its December life high.
Pawan Bharaddia, co-founder of Equitree Capital, expects the market to remain choppy over the next six to eight months. Investors picking up structurally strong businesses and maintaining a long-term perspective will stand to benefit once markets stabilise, he stresses.
Indian markets have begun 2025 on an extremely volatile note, in the wake of the huge FII sell-off and uncertainties around Donald Trump’s economic and trade policies. What is your assessment of the equity market right now, and how do you see the next six to eight months?
We have entered 2025 following two consecutive years of robust double-digit returns on key indices. Naturally, this strong run has pushed valuations higher and raised expectations for continued growth. Whenever valuations run ahead of fundamentals, the market tends to pause—either through a price correction or by moving sideways (time correction)—to digest gains.
Global uncertainties are amplifying these tendencies. In particular, foreign investor sentiment is jittery about the new US administration’s evolving economic and trade stance, and that adds to volatility. Over the next six to eight months, we believe the market will remain fairly choppy. However, this environment often rewards a research-oriented, bottom-up approach, since not every company or sector will be impacted equally.
Our core view is 2025 is likely to be a stock-pickers’ market rather than a broad-based rally. Those who can identify businesses with clear visibility of earnings, strong corporate governance, and fair valuations will be in a better position to navigate this period successfully.
How should investors navigate the current market volatility?
Volatility can be turned into an advantage if one adopts a disciplined investment approach. One effective strategy is staggered investing—allocating capital systematically over time rather than trying to time the market. This approach allows you to buy on dips and moderate the impact of market swings.
Another key element is patience. Rather than reacting to short-term noise, investors who maintain a long-term mindset and stay invested in structurally strong businesses are best positioned to benefit when stability returns.
From a sectoral perspective, where would you bet your money now?
India’s accelerating role in the global manufacturing ecosystem and its sustained infrastructure expansion create a decadal investment opportunity across key sectors.
Manufacturing and Engineering: As global supply chains realign, Indian manufacturers—especially export-driven players—stand to gain. A weaker rupee could further enhance their competitiveness in global markets.
Infrastructure and Ancillaries: With large-scale public spending on roads, railways, and urban development, the multiplier effect will ripple across multiple industries, benefiting companies supplying materials, logistics, and construction services.
That said, selectivity is critical. Not every company within these sectors will emerge as a winner.
The rupee has depreciated sharply against the dollar. Where do you think it will stabilise, and when?
Forecasting specific currency levels is always challenging because of the dynamic global economy. However, we believe that a sharp move higher towards 90 seems unlikely in the near term. The rupee’s recent slide appears to be a catch-up depreciation to align with global dollar strength, which surged in late 2024.
For the RBI, letting the rupee drift gradually lower can help correct any overvaluation and maintain export competitiveness, especially since India’s current account deficit is relatively manageable. The overall macro impact, including imported inflation, remains a watch point, but so far, inflation doesn’t seem to be running uncontrollably high.
The RBI was earlier expected to start cutting interest rates toward the end of 2024, but that was pushed back due to high inflation. Do you think the RBI will cut rates next week, or will the falling rupee pose challenges?
With inflation stabilising and major global central banks pivoting to accommodative stances, the RBI has an opportunity to begin its own easing cycle. While a weaker rupee can complicate rate-cut decisions (as it sometimes fuels imported inflation), a moderate depreciation driven by external factors shouldn’t be a deal-breaker for policy easing—especially if growth needs a boost.
We expect the RBI to weigh multiple factors, including domestic liquidity conditions and capital flows, before taking action. If the rupee stabilises and global headwinds remain manageable, a rate cut in the near term could be on the table to support growth.
What are your expectations from the upcoming Union budget in the backdrop of slowing economic growth?
We anticipate that the government will sustain its infrastructure spending to drive employment and broader economic momentum. Such expenditure often has a multiplier effect, benefiting sectors like construction, cement, steel, and logistics. We also expect manufacturing incentives, in line with India’s long-term objectives to bolster domestic production and global export presence.
On the consumer demand side, there is likely to be a renewed focus through targeted policies that enhance disposable incomes or support rural development. Overall, a balanced budget that addresses short-term macro concerns, such as moderating growth, while continuing to build India’s manufacturing ecosystem would be constructive for the markets.
