From a low of 73,137.9 points, the S&P BSE Sensex went up to 80,334 at the close of 8 May. Is this rally sustainable?
The Indian equity markets have endured multiple headwinds like earnings slowdown, valuation concerns, and massive FPI outflows. While there will be short-term volatile phases, the markets have nearly bottomed out. The long-term trend indicates expansion as the benefits of consumption boosts, liquidity, and rate cuts will come into play.
Looking at earnings, while the downgrade cycle has continued to outpace the upgrade cycle in the March 2025 quarter so far, stability is expected in 2025-26 and 2026-27. The BFSI and automobile sectors are likely to drive earnings in 2025-26, whereas the IT sector is expected to remain a laggard.
Banking remains undervalued. While regulatory curbs, such as higher risk weights on banks lending to NBFCs ( nonbanking financial companies), had earlier weighed on stocks, the RBI’s reversal of these restrictions in February 2025 is expected to support recovery. HDFC Bank, ICICI Bank, and Kotak Mahindra Bank are likely to drive earnings growth in the sector.
RAPID FIRE
Q.What’s the biggest lesson the market has taught you?
Volatility is your friend if you’re a long-term investor.
Q.What is your personal asset allocation right now?
100% equity.
Q.If you were to meet Warren Buffett, what would you ask him?
Being hearty at 94, what is the secret?
Q.If you were Sebi chief for a day, what is the one big policy change you would make?
Two things I will do: Standardise reporting for AIFs and PMS (format and frequency), and ban retail investors from the F&O market.
Q.Any good book you would recommend?
The Almanack of Naval Ravikant.
Q.What investment tip would you want to give your younger self?
I wish I had started early in equity and never looked at any other asset.
You seem to be positive on the equity markets.
While the Indian equity markets have witnessed high turbulence over the past few months, the change in the government’s policy stance is expected to provide stability. Signs of improvement are visible in the Nifty 50 index that has gained over 10% since the first week of April 2025. The volatility over the past few months has been due to a host of domestic and global macro factors. On the domestic front, reduction in government spending due to the Central and state elections led to fiscal tightening.
At the same time, the RBI’s policy of buying rupees and selling dollars to manage the overvalued currency created liquidity tightening. A delay in interest rate cuts and a slowdown in credit growth due to an increase in risk weights of bank loans to NBFCs impacted the performance of domestic equity markets.
Global factors, such as the rise in US bond yields and USD index, have weighed heavily on the emerging markets, including India. Between September 2024 and January 2025, the USD index climbed from 100 to 109, while the US 10-year bond yield rose from 3.6% to 4.8%.
However, the headwinds have started reversing, which will bode well for the market. On the fiscal side, the government tax benefits of Rs.1 lakh crore will provide a boost to consumption. In addition, the start of the rate cut cycle, with two consecutive rate cuts by the RBI in 2025 so far, will lift consumer spending. The RBI’s liquidity measures, such as open market operations (OMOs) and rupee-USD swaps, are providing the much-needed relief. The USD index has also softened and is hovering around 100, which is benefitting the emerging markets, including India.
Another key driver for the recent market surge is the drop in oil prices, with Brent crude falling from $82 per barrel in January 2025 to $62 in April. This decline is expected to boost India’s macro indicators and corporate earnings.
How will US tariffs impact India?
The equity markets reacted negatively in the first week of April 2025 after the imposition of 26% tariffs by the US President Donald Trump on Indian imports. Fears of global economic growth concerns led to a 5.8% decline in the Nifty 50 index in the first week of April 2025.
However, the markets have subsequently recovered as Trump’s focus on bilateral negotiations is expected to tone down the uncertainty associated with tariffs. While China is unlikely to bow down, the intensification of the trade war between China and the US will benefit India as it will continue to reap the benefits of the ‘China plus one’ strategy.
How should retail investors approach the market?
Any new announcements by Trump on tariffs will create turbulence in the markets. The medium- to long-term growth narrative for India remains intact. Therefore, investors should continue to remain invested in equities. The domestic market will continue its bull run once global concerns on tariffs settle down. In terms of valuations, large caps are fairly valued, with the Nifty 50 price-earnings ratio trading close to its long-term average. However, valuations in mid-caps remain at a premium to large caps.
Therefore, given the tariff uncertainties and roughly fair valuations, it is best for investors to stay true to their asset allocation based on their risk appetite. Those who are risk-takers should favour high-growth stocks, irrespective of the valuations. The markets are expected to reward high-growth stocks over the next three years.
Going forward, the markets will be driven by earnings growth across most sectors. However, there will be laggards, including companies that generate a majority of their revenues from exports.
Do you believe inrsuing factor-led strategies or specific investment styles?
Given the extremely volatile market like India, whose standard deviations are very high at any point in time, and the growing uncertainties in the global markets, it is much more difficult for any quant model to predict the future, basing it on the past.
However, if one wants to move to factor-based strategies, it is best to use these with fundamental analysis. Generally speaking, in a bull market, the momentum is the biggest factor that drives everything, followed by growth, quality, and value.
What should be the fixed-income strategy now?
The duration strategy is largely done. Investors can get another 30 basis point benefit, but it will take some time to happen. The duration rally has been quite painful this time and took almost two to two-and-a-half years for the 10-year yield to come down by just 100 basis points. Investors looking at a long-term view may not get much benefit from duration.
Gold has delivered superlative gains. Should investors rethink gold allocation now?
Gold as an asset class continues to remain attractive despite generating over 27% returns in 2025 year-to-date. The reason for the bullish view, despite the substantial price run-up, is due to the worldwide apprehension regarding currency devaluation. This, coupled with a huge distrust of the reserve currency of the world, which is the USD, bodes well for gold.
Gold also acts as a hedge against uncertainties associated with tariffs and wars. Investors should remain invested in the yellow metal as global central banks will continue to buy gold as an alternative to the reserve currency (USD). Such an increase in buying will continue to generate returns in gold.
What alternative assets are worth exploring at this juncture?
Private equity offers a good option if investors want to exploit opportunities in manufacturing, healthcare or consumption segments.
In addition to this, private credit, which helps companies acquire funds at a time when it is difficult to raise funds from other traditional sources due to regulatory or other reasons, is also worth exploring as an investment alternative.
Also, new spaces in real estate, such as small and medium REITs (real estate investment trusts), which allow fractional holding of commercials for retail investors, is expected to grow significantly in the future.
The Indian equity markets have endured multiple headwinds like earnings slowdown, valuation concerns, and massive FPI outflows. While there will be short-term volatile phases, the markets have nearly bottomed out. The long-term trend indicates expansion as the benefits of consumption boosts, liquidity, and rate cuts will come into play.
Looking at earnings, while the downgrade cycle has continued to outpace the upgrade cycle in the March 2025 quarter so far, stability is expected in 2025-26 and 2026-27. The BFSI and automobile sectors are likely to drive earnings in 2025-26, whereas the IT sector is expected to remain a laggard.
Banking remains undervalued. While regulatory curbs, such as higher risk weights on banks lending to NBFCs ( nonbanking financial companies), had earlier weighed on stocks, the RBI’s reversal of these restrictions in February 2025 is expected to support recovery. HDFC Bank, ICICI Bank, and Kotak Mahindra Bank are likely to drive earnings growth in the sector.
RAPID FIRE
Q.What’s the biggest lesson the market has taught you?
Volatility is your friend if you’re a long-term investor.
Q.What is your personal asset allocation right now?
100% equity.
Q.If you were to meet Warren Buffett, what would you ask him?
Being hearty at 94, what is the secret?
Q.If you were Sebi chief for a day, what is the one big policy change you would make?
Two things I will do: Standardise reporting for AIFs and PMS (format and frequency), and ban retail investors from the F&O market.
Q.Any good book you would recommend?
The Almanack of Naval Ravikant.
Q.What investment tip would you want to give your younger self?
I wish I had started early in equity and never looked at any other asset.
You seem to be positive on the equity markets.
While the Indian equity markets have witnessed high turbulence over the past few months, the change in the government’s policy stance is expected to provide stability. Signs of improvement are visible in the Nifty 50 index that has gained over 10% since the first week of April 2025. The volatility over the past few months has been due to a host of domestic and global macro factors. On the domestic front, reduction in government spending due to the Central and state elections led to fiscal tightening.
At the same time, the RBI’s policy of buying rupees and selling dollars to manage the overvalued currency created liquidity tightening. A delay in interest rate cuts and a slowdown in credit growth due to an increase in risk weights of bank loans to NBFCs impacted the performance of domestic equity markets.
Global factors, such as the rise in US bond yields and USD index, have weighed heavily on the emerging markets, including India. Between September 2024 and January 2025, the USD index climbed from 100 to 109, while the US 10-year bond yield rose from 3.6% to 4.8%.
However, the headwinds have started reversing, which will bode well for the market. On the fiscal side, the government tax benefits of Rs.1 lakh crore will provide a boost to consumption. In addition, the start of the rate cut cycle, with two consecutive rate cuts by the RBI in 2025 so far, will lift consumer spending. The RBI’s liquidity measures, such as open market operations (OMOs) and rupee-USD swaps, are providing the much-needed relief. The USD index has also softened and is hovering around 100, which is benefitting the emerging markets, including India.
Another key driver for the recent market surge is the drop in oil prices, with Brent crude falling from $82 per barrel in January 2025 to $62 in April. This decline is expected to boost India’s macro indicators and corporate earnings.
How will US tariffs impact India?
The equity markets reacted negatively in the first week of April 2025 after the imposition of 26% tariffs by the US President Donald Trump on Indian imports. Fears of global economic growth concerns led to a 5.8% decline in the Nifty 50 index in the first week of April 2025.
However, the markets have subsequently recovered as Trump’s focus on bilateral negotiations is expected to tone down the uncertainty associated with tariffs. While China is unlikely to bow down, the intensification of the trade war between China and the US will benefit India as it will continue to reap the benefits of the ‘China plus one’ strategy.
How should retail investors approach the market?
Any new announcements by Trump on tariffs will create turbulence in the markets. The medium- to long-term growth narrative for India remains intact. Therefore, investors should continue to remain invested in equities. The domestic market will continue its bull run once global concerns on tariffs settle down. In terms of valuations, large caps are fairly valued, with the Nifty 50 price-earnings ratio trading close to its long-term average. However, valuations in mid-caps remain at a premium to large caps.
Therefore, given the tariff uncertainties and roughly fair valuations, it is best for investors to stay true to their asset allocation based on their risk appetite. Those who are risk-takers should favour high-growth stocks, irrespective of the valuations. The markets are expected to reward high-growth stocks over the next three years.
Going forward, the markets will be driven by earnings growth across most sectors. However, there will be laggards, including companies that generate a majority of their revenues from exports.
Do you believe inrsuing factor-led strategies or specific investment styles?
Given the extremely volatile market like India, whose standard deviations are very high at any point in time, and the growing uncertainties in the global markets, it is much more difficult for any quant model to predict the future, basing it on the past.
However, if one wants to move to factor-based strategies, it is best to use these with fundamental analysis. Generally speaking, in a bull market, the momentum is the biggest factor that drives everything, followed by growth, quality, and value.
What should be the fixed-income strategy now?
The duration strategy is largely done. Investors can get another 30 basis point benefit, but it will take some time to happen. The duration rally has been quite painful this time and took almost two to two-and-a-half years for the 10-year yield to come down by just 100 basis points. Investors looking at a long-term view may not get much benefit from duration.
Gold has delivered superlative gains. Should investors rethink gold allocation now?
Gold as an asset class continues to remain attractive despite generating over 27% returns in 2025 year-to-date. The reason for the bullish view, despite the substantial price run-up, is due to the worldwide apprehension regarding currency devaluation. This, coupled with a huge distrust of the reserve currency of the world, which is the USD, bodes well for gold.
Gold also acts as a hedge against uncertainties associated with tariffs and wars. Investors should remain invested in the yellow metal as global central banks will continue to buy gold as an alternative to the reserve currency (USD). Such an increase in buying will continue to generate returns in gold.
What alternative assets are worth exploring at this juncture?
Private equity offers a good option if investors want to exploit opportunities in manufacturing, healthcare or consumption segments.
In addition to this, private credit, which helps companies acquire funds at a time when it is difficult to raise funds from other traditional sources due to regulatory or other reasons, is also worth exploring as an investment alternative.
Also, new spaces in real estate, such as small and medium REITs (real estate investment trusts), which allow fractional holding of commercials for retail investors, is expected to grow significantly in the future.
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